The task of trying to figure out how to budget in New York City may seem like a nightmare — but there are people out there, believe it or not, who love to set budgets. They have the knack for turning saving money into a game. They set goals, and somehow have the self control to stick to the rules. If the state of their daily bank account does not allow for that new cute blue sweater, then they don’t buy it — even if it's on sale. And especially even if technically they “can” carry the debt on the credit card.
Others have a more laissez-faire attitude about their finances — they don’t think about how they spend money till their account is overdrawn (whoops!). And while the former budgeting lifestyle might seem too strict, the latter way will lead to debt, and lots of it — especially if you are living in an expensive city like New York.
Getting that first job and moving to New York can be a humbling experience. What may have seemed like a pretty good starting salary before is suddenly not enough to pay for the high rents, expensive nights out, networking, and forget those student loans. Suddenly, you find yourself eating nothing but ramen because you won’t get paid for another five days. So what is the smartest way to divide your money so that you are able to live comfortably in the city that never sleeps?
The classic calculation for financial management is the 50-20-30 rule of budgeting. This rule is used as an outline for breaking down where your after-tax dollars (otherwise known as your take-home pay or your net income) should go so that you are never running on empty again — and can even buy that sweater. In the rule, 50 percent of your take-home pay goes to necessities (rent, utilities, food, healthcare, and transport), 20 percent goes towards the savings that you don’t touch (401k and IRA, for example) and paying off debt (be it student loans or credit cards), and the final 30 percent is your "fun fund" for non-necessity discretionary spending (cable, phone, entertainment, gym classes, and the list goes on).
As the financial blog DoughRoller says, this is not one-size-fits-all formula. However, it is a good jumping off point for someone who wants to take control of their finances and conquer this urban jungle. Some believe that 20 percent is unrealistically high as a long-term savings rate for pricey NYC. Instead, they recommend putting away between 10 and 15 percent to give more wiggle room in the rent department.
Can you stick to the 50-20-30 rule for low and high salaries alike and still be able to live a comfortable lifestyle in NYC? Let’s break it down and see if that vacay to the Italian wine country is in the cards for this summer...
$38,000 A Year Salary
Business Insider reports that that between 2011 and 2013, the average salary for Millennial women working in New York City was $38,319. We are going to round that number down to 38,000 for clear calculation purposes (and my own personal pay experience). We have to assume that at minimum 20 percent, and up to 25 percent for some, of our paycheck will go to taxes, social security, and medicare. After taking out 20 percent (you will probably owe more than that in taxes, all fairness), we are left with a net income of $30,400 to play with.
- Necessary Day-To-Day (50): $15,200 a year — $1,267 a month — $317 a week
- Long-Term Savings (20): $6,080 a year
- "Fun Fund" (30): $9,120 a year — $760 a month — $190 a week — which is not a lot considering the price of martinis these days!
Is this sustainable?
According to realtors, you can expect your rent to be 25 to 30 percent of your gross income in New York. That would leave you between $792 and tops $950 a month to spend on an apartment, which means living alone is not an option. According to the listings site Zumper, the median monthly rent for a NYC one-bedroom apartment in winter of 2016 was $3,280 a month. That means, to make this budget work, you will be sharing a space with many roommates, and it will probably not be in the heart of Greenwich Village. You still have to keep enough money in your "necessities fund" for an unlimited monthly MetroCard which will cost you $116.50, and groceries. It is fiscally impossible to spend 30 percent of your gross income on rent and still put 20 percent of your earnings into savings (you'd only have 50 bucks a week to pay for food). Now we see why The Rent Is Too Damn High Party started right here in New York!
$50,000 A Year Salary
Let’s say you got a sweet raise the next year and are now making a cool 50 Gs — your fiscal troubles are surely in the past now, right? It’s margarita time every time! Wrong. It's time to start thinking about your long-term savings (you know, that thing we neglected when we were only making $38,000?). If you continue to live frugally (keep that cheap apartment with the five roommates) you can start to sock it away, and eventually give yourself more financial freedom. Also, for simplicity's sake I am going to keep your taxes at 20 percent, though they are probably closer to 25 percent in this bracket. Let's just say you had a lot of deductions this year and you're taking home $40,000!
- Necessary Day-To-Day: $20,000 a year — $1,667 a month — $417 a week
- Long-Term Savings: $8,000 a year
- "Fun Fund": $12,000 a year — $1,000 a year — $250 a week — Yum! More martinis!
Is this sustainable?
As long as you stay frugal with your big expenses, you can put away a lot of savings on this salary. You have $60 more a week to do whatever you want with, which means more eating out and socializing! This salary is so comfy I want to pull up a footstool.
$75,000 A Year Salary
Earning $25,000 more will definitely ease the pressure of rent and other necessities, and you can even start to upgrade. Looks like you can almost afford to move into that cute one-bedroom you've always dreamed of! With $60,000 (approx.) after-taxes at your disposal, you can finally go on vacation and even take a taxi from time to time. So long stink train, I own this town!
- Necessary Day-To-Day: $30,000 a year — $2,500 a month — $625 a week(!!!)
- Long-Term Savings: $15,000 a year
- "Fun Fund": $22,5000 a year — $1,875 a month — $469 a week
Is this sustainable?
If there is any city where you still couldn't live comfortably on a salary of 75K, it would be New York. There is so much temptation for spending, but as long as you continue to make smart decisions and do go too far outside your budget you'll be more than comfortable.
Images: pexels, giphy (1, 2, 3)