What does being a lifelong renter mean for your savings?

Being a renter all your life does not necessarily condemn you to make financial sacrifices. It just means you put your money elsewhere.

Young people can feel particularly hopeless when they look at current housing market conditions, notes Shelley Smith, investment advisor at TD Wealth. Home prices are out of reach for many, and the higher cost of living makes it harder to save for a down payment.

“I don’t think it’s unusual for someone in their 20s to say, ‘I don’t think I can own a house,’” she said.

Even millennials – some of whom are now in their 40s – have likely seen real estate prices go from attainable to unattainable, particularly in urban markets. As Vancouverite Brad Badelt wrote for the magazine The Walrus last year: “It’s like watching a train leave the station without me – and it won’t come back. »

The federal government recently announced it would propose a tenants’ bill of rights, recognizing that young people are renting more than previous generations and for longer periods.

There’s no need, however, to resign yourself to less financial security if you find yourself renting your entire life, said Ms.^me Smith.

While financial priorities can change over the course of a lifetime, saving is useful in all situations, she emphasizes. She suggests saving between 15% and 20% of your income.

“It’s going to be very difficult to do – and honestly, you know, even 10% seems laughable to some people at this point, but what you need to do is set up a regular savings plan and you need to prioritize it. »

Just like rent payment is non-negotiable, added M^me Smith, setting aside part of his paycheck shouldn’t be either.

You can still have security — even a large asset — without a house or condo, said Ed Rempel, financial planner behind the blog and podcast Unconventional Wisdom.

He has high-income clients who are renters, including an actor who was considering buying a condo in Toronto. Instead, Mr. Rempel stressed the importance of work flexibility. What would happen if the actor got a job in Calgary or California?

“A home is about security, but in reality you have less freedom,” says Rempel. Studies show that people who rent are promoted faster within their companies, especially at companies that have offices all over the world. »

A “tenant’s RRSP”

Although the relatively new Tax-Free Savings Account for First-Time Home Buyers (CELIAPP) seems aimed at hopeful buyers, Rempel points out that it can, in fact, be used as a “renter’s RRSP”.

Why is this good for tenants? You never have to buy a home with these tax-deductible contributions, he emphasized.

In fact, he added, if you have contribution room in both your CELIAPP and your RRSP, he advises maximizing your CELIAPP first.

By investing early, you can generate significant gains, underlines Mr. Rempel, who gives the example of the “FIRE” movement, an English acronym that evokes these extremely frugal young people who save in order to achieve financial independence at a young age.

While saving at a rate as high as 70%, as some followers of the movement do, may not be for everyone, the basics of starting early and adopting an investing strategy can be helpful to everyone.

“If you’re young, you want to invest in a growth strategy,” says Rempel.

Early investing beats real estate, Rempel says. “Real estate actually grows quite slowly over time,” he noted, pointing to nearly 50 years of data.

For his blog, he compared data on US, global and Canadian stocks with data on Toronto real estate, from 1975 to 2022. If someone in 1975 had invested a sum of money the size of a down payment in stocks, he would have more money today than if he had bought a house, even at Toronto prices.

“If you’re disciplined, you could have a much higher net worth without ever owning a home,” says Rempel.