You may think that, in order to increase your net worth, you need to start investing in the stock market, try and make more money online or even get your foot in the door with a new and exciting business opportunity.
But one of the biggest ways to add more cash flow to your budget is simply changing where you live.
Whether it’s moving to a more affordable home or to a city with more employment opportunities, if this is the year you’re serious about growing your net worth and having a higher savings rate…
...think about moving to a lower cost area.
To help get you started, I've compiled a list of the most affordable cities to live in throughout Canada.
Detriment to wealth building
One of the biggest obstacles to building wealth is not necessarily having a low income – it’s having high living expenses.
And one of the biggest expenses in most people’s budgets is their housing category, whether that’s mortgage or rent.
In Stop Acting Rich: And Start Living Like A Real Millionaire, Thomas Stanley explains why our homes have such a huge impact on our wealth:
"What we don't realize is that the true cost of living in certain homes and neighborhoods is unseen but truly devastating. I believe the greatest detriment to building wealth is our home/neighborhood environment. If you live in a pricey home and neighborhood, you will act and buy like your neighbors. In other words, human beings have an innate tendency to act and be like those around them – to fit in – and even compete. The type of home we live in and where we choose to live often takes the greatest toll on our financial wealth, and from it, all other perils flow."
Stanley argues that living in an expensive home or city doesn’t simply affect a one-line item in your budget – it affects other categories as well. Overspending on your home can result in spending more on cars, groceries and even haircuts since we take our cues from our neighbors.
If your neighbors get their lawns professionally serviced or their homes cleaned weekly, then you’re more likely to match this behavior or even surpass it.
The reason for this is due to "relative deprivation," – if everyone else has it, why shouldn’t you?
Keeping up with the Joneses
If you live in an affluent neighborhood with driveways filled with luxury cars, you’re more likely to fall into the trap of keeping up with the Joneses.
Researchers found that living in an area with higher incomes resulted in a greater desire for material possessions, more impulse buying and fewer saving behaviors.
Even if you are able to resist the urge to keep up with the Joneses, simply owning a larger home will result in more expenses. It’s more expensive to heat and cool a larger home, as well as maintain the house and land. (Larger properties also result in higher taxes.)
The surrounding grocery stores and services are also more likely to cater to the desires and incomes of the affluent neighborhood resulting in higher prices as opposed to a no frills grocery store in a more affordable part of town.
How to build wealth
The one thing most self-made millionaires have in common is that they bought a home well within their means and, as a result, had enough money leftover to save and invest.
Instead of throwing money at the most expensive home and neighborhood, these people chose a house based on whether it made sense financially. They ran their households like a business and never let their overhead get too high.
When it comes to buying a home, the rule of thumb Thomas Stanley recommends is to buy a home where the market value is less than three times your household income.
Also, never buy a home that requires a mortgage more than twice your annual income.
While this formula may not work for everyone, these general rules should give the average family ample room for saving.
Choose your home wisely
With the rules outlined above, you might be thinking how difficult it is to buy a suitable home in your city within your price range. If that’s the case, you may need to shift your idea of what a suitable home looks like ‒ or consider moving to a more affordable city.
If you have multiple kids and/or pets, living in a one-bedroom apartment is probably NOT going to be suitable for your family. However, moving to an older home that is slightly outdated, but fits your entire family might be the right move if it makes your housing payments more reasonable.
Consider life in a new city
Sometimes moving to an entirely new city will give you more affordable prospects.
However, one thing to consider is your commute to work. If you’re going to be spending a substantial amount of money on gas and vehicle maintenance as well as more hours away from your family, it may not be the right choice for you.
The best approach to moving cities is to consider changing jobs as well. Choosing a city with a low unemployment rate and many job prospects can make an affordable city that much more attractive. This combination can be the difference between a negative and positive net worth.
For our family, we moved cities for precisely these reasons.
A cross-country move
We went from living in the most expensive city in Canada (Vancouver, B.C.) where our rent was nearly 40% of our gross monthly income to living in the second most expensive city in Canada (Toronto, Ont.) where our mortgage and property taxes added up to approximately 35% of our gross monthly income.
We still weren’t happy with housing expenses taking up this much of our monthly budget, so we started to look at more affordable cities. We were also expanding our family, so we needed a bigger home. We looked at three factors:
- housing prices,
- job prospects, and
- proximity to an international airport.
My spouse’s line of work is in technology and, since most of his clients are internationally based, we needed to be no more than an hour’s drive from a major airport.
We ended up settling on the Kitchener-Waterloo region due it’s housing affordability and the fact that it’s Canada’s fastest growing tech market. It’s also exactly one hour’s drive from Pearson International Airport.
Our current home has more than enough space for our family to grow into and represents about 20% of our gross monthly income, which allows us to have a nearly 30% savings rate. When we lived in Vancouver, we had a 10% savings rate and no real estate since we were renting our home.
Are we sad to have given up the mountains and access to the seawall in Vancouver? Sure.
But was moving worth tripling our net worth and securing our future? You bet.
Related: How To Save Money on Moving Expenses
Where are Canada’s most expensive and most affordable cities?
Now that you’re ready to take the plunge in a new city – or are at least considering moving to a more affordable neighborhood – you might be wondering where the most affordable places in Canada are.
But before we look at the most affordable cities, let’s see if you live in one of the most expensive cities in Canada:
Canada’s most expensive cities
- Vancouver, British Columbia. As mentioned above, Vancouver is Canada’s most expensive city. In fact, Vancouver was even named the most expensive city to live in in North America, beating the ranks of`notoriously expensive cities such as New York City and San Francisco. Why? Although real estate might be higher on average in New York and San Francisco, the median income is much lower in Vancouver than it is for these other cities.
- Toronto, Ontario. It probably comes as no surprise that the most populous city in Canada is also one of the most expensive. Toronto is a major business hub where many domestic and international head offices are housed. Although the diverse culture and nightlife of downtown Toronto is convenient to access, the cost of living in this big city is not.
- Victoria, British Columbia. This beautiful, tucked-away town on Vancouver island is picturesque and peaceful, but the cost of living is sky-high. In addition to the high cost of living, heavy home ownership taxes are in place for people who are either newcomers to the city or don’t live there year-round.
If you live in any of these three cities or are thinking of relocating to any of them, think again.
Sure, many people make the argument that living in a major metropolitan city allows them to earn more. But studies show that while you might make more in a major city, your cost of living usually far exceeds the extra income.
There are plenty of places that will give you much more bang for your buck and provide ample room in your budget to travel to the above cities whenever you want.
Canada’s most affordable cities
When looking for an affordable city, it’s important to look at more than just the cost of real estate. Job prospects and city amenities can make or break a city’s livability.
The following list of cities have a good mix of affordable real estate, as well as solid job prospects for people on the hunt:
- Halifax, Nova Scotia: The capital of Nova Scotia has one of the most affordable housing market in Canada. In addition, Halifax has a very healthy job market. It’s home to over 400,000 people which also gives the feel of living in a large metropolitan city.
- Quebec City, Quebec: With a low unemployment rate and a median single family home price of $245,000, this capital city is not only a great place to work, but also an affordable place to live. Quebec city is even growing its jobs three times as quickly as it’s growing its population.
- Windsor, Ontario: This city conveniently borders Detroit and is the place to be if day trips to the U.S. appeal to you. Even with its convenient location, real estate prices are quite reasonable with average house prices in the mid $200,000 range. Windsor also has a strong job market and is known for its automotive industry. Tourism, education and government services are also major employers here.
- Kitchener, Ontario: Although only 100 km west of Toronto, Kitchener-Waterloo home prices are nearly half those of Toronto homes, averaging around $350,000. Known as the "tech hub," KW has one of the strongest job markets in Canada with tech giants Google and Shopify having recently built new head offices here. There is also a large insurance and healthcare industry in the Waterloo region, in addition to being home to two large universities.
- Regina, Saskatchewan: The average cost of a home in this capital city is $312,000. The city also has a sizable population at 193,000 people. In the last few years, the priority for the city has been to create jobs, which has earned them a high rating among residents.
Best of both worlds
Just because you live in an affordable city doesn’t mean your career has to suffer. It is possible to live in a home you can afford and have an enjoyable, thriving career.
Many of the affordable cities listed above have a variety of jobs in many sectors from entry level to VP positions. You may even have a better chance of getting promotions in a smaller city due to less competition.
Being able to lower living expenses as well as increase your cash flow is a winning combination to substantially growing your family’s net worth. If this is a priority for you, then perhaps it’s time to make a move.
If you have moved to a more affordable city, tell us about that experience. How did it affect your budget and overall net worth?