Living in an Expensive City

We’ve all heard of ludicrous living situations in expensive cities. Between crawl space rentals in San Francisco, 300 square foot apartments in Manhattan, or basement dwellers in Hong Kong you wonder how people survive at all in an expensive city. The reality for most people is usually not as bad as the aforementioned, but clearly the cost of living is higher in big cities.

Have you ever stopped and wondered why things cost more in big cities? It’s because:

1. demand for things is higher and
2. supply of things (per person) is lower
   It always goes back to supply and demand. The amount of people interested in buying a Midtown Manhattan apartment is much, much greater than the amount of people interested in buying an apartment in Huntsville, Alabama. But… the space for and therefore supply of apartments in Manhattan is much, much less per person. More people, more demand. Less space per person, less supply.

Living in a big, expensive city has its perks and drawbacks, but that’s not the focus of this article. Here I will identify ways to limit expenditures when you do in fact live in an expensive city.

Tip 1 – Base your budget on your income: Your income dictates what you can spend. There seems to be a pervasive illusion in peoples’ minds that not only must you “keep up with the Jones’”, but that there is an equal level of lifestyle that works for all people. It doesn’t work like that! You have to live a lifestyle according to your means (income). If you make $40,000 a year, you may not be able to afford your own 2-bedroom apartment in South Beach or to take that luxurious 5-star Caribbean cruise like your neighbor who works at Google. Be reasonable in your expectations and lifestyle!

Expensive cities are expensive for a reason. That being said, if you’re going to live in an expensive city, you need the income to justify it. It’s not reasonable to live somewhere that costs $50,000/year to live if you make $40,000/year. The good news is that living in an expensive city can force you to learn to be frugal, which will make certain habits easier to retain later in life should you choose to relocate to the suburbs.

Live below your means – spend less than you make. As Ice Cube said: check yourself before you wreck yourself.

Tip 2 – Figure out where you’re spending your money: Go through your bank statements or use budgeting tools like Mint.com to figure out where you spend the most money. You stand to make the biggest positive impact to your spending by taking action in the areas where you spend the most money. Concentrate your effort and amend expensive habits/lifestyle choices. The amount of time and effort it might take to figure out a way to save $200/month on rent is tiny compared to the time and effort you might expend couponing day in and day out to save the same $200/month. That’s the essence of efficiency.

The U.S. Department of Labor pegs housing, transportation, and food as the biggest recurring cost centers for the average American, so that might be where you want to start.

Tip 3 – Cut corners on housing costs: Think openly about where you live. You don’t have to live in SoDaSoPa to enjoy living in a city. What I mean by that is that you don’t have to live in the trendiest, most upscale neighborhood in the city. Besides, just because something exists doesn’t mean you can afford it. There are neighborhoods in cities where the cost of things is beyond what most people can afford. Having a private jet would be nice, but it doesn’t mean I can go out and get one because they exist or because my boss’s boss’s boss’s boss’s boss owns one.

Our Frugal Friday article on Renting has plenty of renter’s tips, but here are some more specific options to consider:

a. Live in a less expensive neighborhood that is still close to work. If everything near work is still very expensive, accept a longer commute and find a place further out.
b. Get a roommate or even multiple roommates. Throw the sense of entitlement out; just because you have finished college or are married or are “middle income” doesn’t mean you’re above having to live with someone else. It could mean the difference of cutting your housing costs by 40%.
c. Find rent-controlled apartments. While rent-controls hurt the overall housing market in the long run, you might as well take advantage of an artificially low rent if you have the opportunity.
d. Airbnb your place. This is technically an income tip, but I can’t help but include it as a way to subsidize your housing cost. By renting out your apartment when you go out of town to visit family occasionally or during big events in the city, you can generate a nice little bit a pocket change that will effectively reduce your housing cost.

Tip 4 – Get rid of your car: The answer to whether or not you should have a car in a big city is different for every person, so you have to evaluate your own personal factors in the decision. Determine the total cost and convenience of owning and using a car versus whatever your alternative is. In very crowded cities with convenient public transportation options like Manhattan in New York, getting rid of your car can be an attractive financial decision, especially if you live close to work. In sprawled-out cities like Houston where destinations can be several miles apart, it may be a near-necessity to have a car.

Consider whether using some combination of riding a bike, riding the subway/train, or using taxis/Ubers/Lyfts is a less costly, sustainable lifestyle choice. Don’t just guess by feeling, use rough math. If you only go back and forth to work and out to socialize 3 times a week, that’s 16 one-way trips a week or ~70 per month. Is it more or less costly/convenient to ride a bike all of those times? It’s definitely less costly, so that one comes down to convenience and practicality. Is it more or less costly/convenient to Uber? $10 per ride would mean $700 per month in our scenario. That may or may not be cheaper than the cost of your car’s depreciation, car insurance, gas, parking, and tolls. It’s up to you to figure it out for your situation.

Tip 5 – Eat at home: Without going into all of the tips in our Frugal Friday article on Food, I’ll say that eating at home (i.e. groceries + cooking) saves a ton versus eating out at restaurants all the time. Think of the difference: eating out two meals a day paying even $15/meal is over $900/month, whereas you might be able to get away with spending only half that on groceries. Restaurants kill your budget.

Also, spend less on alcohol. Being someone that doesn’t drink, this one has always amazed me. A night out to a crowded bar or club often runs people $100+ because they have to pay $10 a drink. That is not a cheap form of entertainment. It is possible to have fun without drinking, it really is.

Tip 6 – Cultivate inexpensive hobbies/tastes/preferences: Let other people call you cheap. You don’t need to impress them. The proud shall be humbled… by interest payments! As cool as exotic cars may be, being a sports car aficionado or collector is probably not the most attainable pass-time for the average person. On the other hand, playing a sport or reading can provide endless hours of entertainment, often at a low cost. A hobby is something you enjoy and are happy to devote time towards. Be intentional about which hobbies you nurture because a good hobby can not only save you money, but potentially develop relationships, travel, become more educated or physically fit, or even become more generous and compassionate.

Tip 7 – Buy used, not new: Living in the city when you’re still a young adult likely means you will move around several times. Don’t throw away money buying brand new furniture every time you relocate (at least until you’re settling down). If you get expensive furniture, you’ll end up wanting to pay movers and getting a moving truck to get your stuff to the new place, which turns out to be quite the hassle. Instead, if you have used stuff that you’re willing to part with you’ll be able to post it on Craigslist, sell it for a little bit, and the person that comes to buy it will move it out for you. That’s a win-win; a nice little moving trick there.

Appendix – Cost of Living:

Be aware of your city’s cost of living relative to other geographies. Check out cost of living maps/calculators on Expatistan, Numbeo, and Bankrate to compare Purchasing Power Parity and cost of living indexes. Even if you have semi-deep roots in a particular city, you might be able to drastically raise your quality of life elsewhere.