In 2022 we are undergoing record levels of inflation and economic uncertainty. Everything from donuts to socks is more expensive and in many cases harder to come by. Even the expert savers among you that waste very little are finding it tough. Unfortunately this is all our ‘chickens coming home to roost’ from the large amount of money printing done by governments over the past decade and a half.
While those in charge are trying their best to ‘slowly and safely’ crash the economy using interest rate rises there are many places that hopped on the inflation train a lot earlier. In Vancouver, Canada’s second biggest city, there has been a housing crisis for over a decade.
The cost of living there is so astronomical it’s incredibly difficult to rationalize living there in 2022. These interest rate rises are only increasing rental costs as well.
The average one bedroom condo costs $1 Million. No only that but up until recent rate rises people were blind bidding with zero conditions. That meant people were happily spending over 1 million dollars to buy a house that might collapse in on itself. Clearly these people need to adopt a healthy money mindset.
Despite all this, Vancouver is still a destination of choice for many immigrants, especially from Asia as the climate and communities established there are familiar and enjoyable.
The City is a modern metropolis with everything you’d need to live and love life. If you want to be one gaze out at the Pacific Ocean while drinking your soy latte though, what do you need to live there, and better yet thrive there? Let’s see.
What is Living Wage (LW)
The idea of a living wage is not new, especially in countries where wages have not kept up with inflation. If you consume Conservative media you probably vastly overstate it and if you consume Liberal media you likely overstate it too, just for different reasons.
The scientific definition of a living wage is pretty much just the amount of money that a family of 2 adults and 2 children needs to cover reasonable costs. This includes daycare, transit, groceries, housing, clothing, medical expenses and other. It also includes tax rebates and net taxes and government supports.
It is really a true ‘minimum wage’ that allows people to live with dignity in the modern economy. You can find more information about the methodology here
For the sample family this is a whopping $76,112 gross per annum. This doesn’t seem particularly onerous until you realize that to have a living wage in Vancouver you need to be in the top 25% of income earning households AND receive government subsidies for things like childcare.
This is no small hurdle, especially when you consider the average living wage for Calgary and Edmonton is 18.35 an hour or $66,794. Both cities also offer similar salaries and lower taxes too (Alberta has no sales tax).
So what about if you want to one day achieve financial independence and build a median amount of wealth over the course of your working life? It’s clear the living wage doesn’t do this, for that you need the ‘thriving wage’.
What is Thriving Wage (TW)
In the same style as living wage rates, a ‘thriving wage’ is a measure of economic well-being that operates above the minimum pay that an adult worker can receive. It is designed to allow people some reasonable extra spending like a vacation once or year or a car younger than 15 years old while also empowering them to save up their Emergency Fund and invest for their future (check out our retirement calculator for more info).
It is not about living an avocado toast fueled lifestyle like most talking heads would have you believe but rather it is about getting above the lifestyle baseline set by the living wage. There is no agreed method at present but it is a reasonable assumption that to thrive in Vancouver our family needs to earn at least an extra $20,000 per year gross above living wage (and more if they want to own their own home someday).
So that’s $96,112 ($26.40 per hour) gross household income a year in Vancouver. That’s the top 15% in household income for the entire country. That’s just to live a relatively comfortable life.
If you ever though complaints about cost of living was just Millennial moaning just try finding 2 jobs paying $26.40 as a new immigrant or under-skilled person. You’re likely to fall about $8-10 short.
So just how big of a task is the Vancouver dream for our average couple? Let’s have a look at the key expense categories of the ‘Thriving Wage’ add it all together.
Cost of Housing & Utilities
Housing in Vancouver is a national disgrace courtesy of years of Federal inaction and foreign money. It is worth noting that for almost a decade housing in Canada has been little more than a giant money laundering operation and wealth inequality scheme. People in power are intentionally creating these conditions and there’s very little that can be done to stop it outside of political action.
Stepping aside from the political for a minute, the on the ground consequences of this are a chronic undersupply of affordable housing be it rental or ownership.
Assuming that our Thriving Family will occupy their place alone the average cost of their home in a decent area is going to be about $3,500 per month in rent and about $250-300 in utilities for a total cost of $3,800 or ~45% of their gross income.
All that money for a pretty average living situation in a Condo. They’ll likely live in the outer reaches of the Metro area like Burnaby or Surrey. By any measure of economic well-being spending over half of your net pay on rent and utilities to live in accommodation that is just ‘acceptable’ is a very tough position. And these guys are top 15% earners!
Running Total: $3,800 45% of Gross income
Cost of Food
Grocery prices have been going through the roof recently in both the USA and Canada. Grocery staples have increased in price due to inflation and not a small percentage of price fixing / price gouging.
If you look at the average grocery spend by a Canadian family of four it is hopelessly outdated for the modern world unless everybody is eating beans three times a day. In 2022, with inflation biting hard, our thriving family of 4 will spend about $1,000 a month on groceries.
For the United States and Canada this is pretty much at the median of household groceries. Some people will frugally spend less but big city living is rarely frugal and it’s more likely to be higher than lower.
Of course, meal planning is a sensible thing to do but being tied to a minimalist and overly structured grocery and ‘meals out’ plan is not anybody’s definition of ‘thriving’.
Running Total: $4,800, 60% of gross income
Over time some consumer goods tends to get cheaper and others pretty much rise with inflation, however, thanks to inflation and the unstoppable march of technology ensure there are plenty of extra expenses coming your way this year.
Outside of what you might buy at Sobeys , a household still needs clothes, gadgets, appliances and numerous other things to keep their home livable. In general terms this is much more manageable than what one would spend on food though. Good quality goods tend to last a bit longer and the ‘monthly’ cost of buying a Laptop that lasts 5 years for $1200 is only $20 a month.
This works best in households that don’t chase ‘trends’ and tend to be more frugal in their expenses (which nowadays most are forced to be). When doing the math for a livable household budget a solid average of $400-500 would cover most people.
If you have to add on kids sports (or even adult sports like cycling) or a lot of technology costs such as ipads it’s likely going to be a lot more than this. Federal childcare subsidies in Canada help ensure that working people can have a decent standard of childcare.
If you lived south of the Border then you might be dropping an extra couple of thousand every month!
Rolling Total: $5,200 or 65% of Gross Income
The more budget conscious among you are probably noticing that we are getting super close to what our after tax income would be living and working in BC. Our family likely has somewhere between $800-1000 left which is not going to cover even a used car with todays insane prices.
This makes owning a car practically unworkable even at these relatively high salaries. Sure you could do it but it would eat up everything you have left in your budget and leave no wiggle room for other spending or emergencies.
So our ‘living wage’ family first and now our ‘thriving wage’ family are going to have to live incredibly frugally to have a car. Thankfully transit in Vancouver is excellent and affordable so in theory this cost can be kept much more reasonable $400 for the whole family.
It’s really worth thinking on this point though. A ‘100k’ household can’t afford to own a single car living in Metro Vancouver. A crazy time to be alive.
Running Total: $5,600, 70% of Gross Income
Fun Money, Savings, and Other
Normally when budgeting you’d probably be well-advised to keep your ‘fun money’ and savings separate. Certainly there will always be temptation to spend your savings if the two funds are mingling with each other.
In this case though we’re going to have to have a exception because quite frankly, we’re still not getting enough spare cash at the end of each month to do any significant savings. Right now our entertainment and investment budgets is probably somewhere around $500.
This also has to cover our emergency fund and any educational savings for the two kids. While you might get very good healthcare from your job there’s always going to be something that isn’t covered, that’s just a fact of life.
It’s clear that this isn’t enough money to build any sort of generational advantage or even to get to a state when you can weather unexpected economic headwinds with ease.
It’s more likely that this spending will all be eaten up by incidentals including birthdays, treats, and general surprise spends such a field trips or ice cream on a sunny day.
When we consider funneling money in TFSAs (retirement) and RESPs (education) our family is definitely joining the 33% of Canadians or 49% of Americans with no real retirement savings. Something isn’t quite right with these measures of ‘living’ or even for that matter, ‘thriving’. To thrive you have to be comfortable, and having about $100 spare a month is very much uncomfortable.
Let’s return to our original definitions again and construct a good baselines for life in Vancouver:
- At minimum wage: You are $50,000 below comfort (TW)
- At living wage: You are $25,000 below comfort (TW)
- At thriving wage: You are $10,000 below ‘success’
Success is obviously a very individual and sometimes loaded term but here it just refers to a level of economic comfort that would have traditionally been referred to as the ‘American Dream’. Interestingly if you check back up top at the cost of rental costs in Vancouver you see that the gap between living and thriving wages is mainly cause by that huge discrepancy.
There isn’t space anywhere else to extract better quality of live from either. Our test family is not living in a land of endless avocado toast. Were they able to pay a much more modest amount for rent, say $2,300 dollars a month then they would only be about $600 a month off a thriving wage.
That is a much more bridgeable gap for the average person. It requires both parties to get an average pay rise of about $3.
As it stands though, if our test family wants to have 2 kids, one car, and live a normal life in Vancouver they are going to need to earn upwards of $105,000 gross per annum.
So if you have always dreamed of living in Vancouver this would be the level at which you might aim in the medium term, a goal to strive for but definitely not a baseline for a happy life. If you are a single person or a couple that doesn’t want kids this number will be much less. Certainly if the ‘living wage’ discounted children it would be a workable measure but that’s not the majority hope.
Vancouver is a wonderful place to live, but everything in life has a cost, and they just keep raising the rates on Van City. Proceed with caution.
Do you think this is an easily attainable salary? Have you had similar experiences with the cost of living in Metro Vancouver Let us know below in the comments.