How to Afford to Live in an Unaffordable City

One of the biggest challenges facing millennials today is enjoying any semblance of a comfortable lifestyle while underemployed (or unemployed) and saddled with student loan debt.

For all the crap Boomers give the generation of their adult children, millennials do really have it harder than their parents did.

Virtually everything is more expensive, but the two things that have become the most expensive remain the measuring sticks of success: post-secondary education and home ownership.

For many, home ownership isn’t even on their radar because they’re trying to afford rent in an unaffordable city.

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How much should you be spending on housing?

A general rule of thumb is to spend no more than 35% of your net income on all your housing costs. This includes rent/mortgage plus utilities, insurance, repairs & maintenance, homeowners dues, and so on. This comes from a suggested (but not mandatory) budget breakdown that looks like this:

For people living in pricey cities like Toronto, Vancouver, San Francisco, New York, or others, 35% of your net income might not even cover your average rent, let alone your other housing costs. If you live in an unaffordable city, it is permissible and necessary to spend more than 35% of your net income to keep a roof over your head.

If you forego car ownership, you can comfortably accommodate spending up to 50% of your net income on housing costs.

This is because as you can see from my suggested budget above, 15% of your net income is a good rule of thumb to spend on transportation.

However, if you can eliminate or significantly reduce your transportation costs by choosing to live near your work and nightlife, then you can feel good about allocating these savings to increased housing costs.

Focus on reducing your largest expense: housing

If your happy place is the centre of a concrete jungle, I feel you. I’ve always loved to live smack dab in the centre of a city, particularly within a 3 block radius of a grocery store, my favorite coffee shop, and my work.

I’m lucky I’ve never called Vancouver or Toronto home otherwise this would take more serious financial gymnastics and creativity to accomplish.

However, I have lived in a few less desirable places only to stay on budget and still live in the neighborhoods I’ve wanted. Roommates, walk-ups, old buildings, balconies that faced parking lots, no balconies whatsoever, closet-sized bedrooms, and screeching water pipes have all been part of the “sacrifices” I’ve made to live where I wanted and within budget.

The secret to living in the city you want (and the neighborhood you want) is finding the most affordable option in that location. There are a few different ways to do this:

• Share space by getting roommates (but maybe not 14!)
• Settle for smaller space, like a bachelor or a studio
• Choose an older building
• Give up “must-haves” like a dishwasher or ensuite laundry
• Look 10 to 25 minutes outside our ideal area (that is NOT a bad public transit commute or Uber ride)

When it comes to finding the home of your dreams, sometimes you have to choose between whether that constitutes the actual “home” of your dreams, and when it means the lifestyle or neighborhood of your dreams. You can’t always afford both.

Pay off your debt to free up your disposable income

There are the apartments I had as a debt-laden student, and there are the apartments I had otherwise. I’ll tell you: it’s way easier to live where you want when it’s the only real bill you have to pay.

Every $100 you’re spending on student loans is $100 that could be going to a swankier apartment — and when it comes to housing, $100 goes a long way.

Many people accept student loan payments as a necessary evil, but they don’t have to be. You can (and should) pay off your debt sooner rather than later, if for not other reason it gets rid of the monthly payments from your budget.

The difference of becoming debt free in 3 years instead of 10 is more than simply saving money on interest costs, it’s also about the opportunity cost of having flexibility in your budget 7 years sooner.

If your debt is holding you back from being able to live where you want to, then pay it off.

Or at least pay part of it off. Getting rid of your consumer debt and/or 1 or 2 student loans can mean the difference between staying in your parent’s basement and living downtown.

Start seeing your debt as a very real barrier keeping you out of the home you want — because it is. Get rid of it and you can live wherever you want.

Increase your income with a side hustle

Hands down the easiest way to afford anything extra in your budget is to dedicate a specific income stream to pay for it.

Chances are it probably would take as little as $200 or $300 more per month to be able to afford to live where you want, so now this becomes a matter of where can you find this extra money to pay your inflated rent.

A single half-day shift at a coffee shop would easily bring in an extra $50 per week. So now the question becomes:

Are you willing to make lattes for 4 hours on Saturday mornings in order to keep your apartment?

If the answer is no, you don’t really want to live there.

For the love of god, MOVE

This is an unpopular opinion, but it’s worth considering. I know no one that lives in Toronto wants to leave Toronto, but if living in an unaffordable city is killing your bank account and compromising your future financial security, nothing about living in the centre of the universe is worth it.

You need retirement savings more than you need to be close to your favorite coffeeshop.

You need to be debt free more than you need to call a certain zipcode home.

Remember: you can do your job elsewhere.

Regina, Saskatchewan really isn’t that bad.

The fact of the matter is, it doesn’t matter how amazing the nightlife in Toronto/Vancouver/New York/San Francisco is if you can’t afford to participate in it. Sometimes the fact of the matter is, you really can’t afford to live in an unaffordable city, and you’d be better off leaving.

I know it’s blasphemy to say this, and many people never come around to the idea. But you can have a really beautiful life filled with fulfilling work, fun nightclubs, and good restaurants outside of the biggest and most expensive cities in North America.

In fact, you’ll likely find living somewhere cheaper frees you from anxiety and stress that was putting a serious damper on enjoying life in the big city.

And let’s imagine for a second what your life could be like if you were able to spend only 35% of your income on housing, and free up that extra 15% for travel. Nice, right?