Learning to Become an Extreme Saver – Part 2 (How I live in NYC on $12,000/year)
May 09, 2012I live in New York City and spend only $12,000 a year.
Maybe you’re wondering right now, with eyes wide open, whether I’m about to explain how to live in extravagance in a Fifth Avenue penthouse and attend Broadway shows every night on a small budget. Or maybe based on stories you’ve heard about the high cost of living in New York, you’re thinking I might live in a condemned apartment where gunshots ring out every night.
But even though that $12,000 figure may be low, you don’t need to live at the extremes in order to be an extreme saver. I enjoy a normal, middle class lifestyle like most of us do. My wife and I live in a safe neighborhood with tree lined streets, we go out to eat, we take vacations. In fact, I’d be disappointed if there were something unusual about my lifestyle, if for example I got lucky by inheriting an apartment or did live in a crime ridden area, because then there wouldn’t be much to learn from my experience.
You might think you could never spend so little because you need every last dollar of your paycheck. But have you ever wondered how it is that people earning varying levels of income all somehow seem to feel like they’re struggling to make ends meet? Perhaps many people only think they need everything they earn simply because they’ve become accustomed to their current level of spending. Try thinking about lowering your expenses by first calculating how much you spend on your true needs: housing, transportation, food, health care, communication, and personal hygiene. The reason why that’s a good first step is because many people spend the majority of their income on these things, sometimes to pay for sizable houses or expensive cars and meals.
The most important thing I’ve done to limit my own spending is to not buy into the commonly accepted notion that when it comes to my needs, I should purchase as expensive an item as I can afford. Instead, in every area where I spend money, I’ve learned to purchase as inexpensive an item as I can feel comfortable using. This applies when it comes to housing, a car, or anything else. You may surprise yourself by how much cheaper things can be if you do the same. Here’s my own example of how my housing, transportation, food, health care, communication, and personal hygiene expenses add up in a city as expensive as New York can be (if you let it):
Housing. If you read articles about housing costs in New York City, you might think the only option is to spend $3,000/month or more on a place to live. That’s definitely true in some neighborhoods. The advantage of New York, however, is it’s supported by a cheap and extensive subway system. My view has always been that if you can live in a great neighborhood that’s cheaper, and still get to all major areas of the city within twenty five to thirty minutes by subway, then you’re able to get the benefits of living in New York at a fraction of the cost. These qualities are true of many neighborhoods in northern Manhattan, Brooklyn, and Queens.
I live in one such neighborhood known for its peaceful tree lined streets and historic architecture, where rents can start at $1,000/month for a studio apartment (this is low for New York). I know a studio isn’t right for all families, but when my wife and I thought about the smallest housing arrangement that we’d feel comfortable with, we couldn’t really see a need for anything larger. We own our studio apartment, where our costs total $1,100/month to pay the mortgage and HOA fees. But after factoring in the mortgage interest tax deduction, and the amount of the mortgage payment that goes toward principal and increases the equity in my apartment, the true cost of my apartment is only $800/month. My wife and I split that amount, making my individual cost only $400/month. Utilities, including electricity and cable Internet access (heat is included in the HOA fee), run about $100/month, or $50 each, making my housing cost just $450/month. It definitely helps me that my wife and I can split these costs, but if I were single, I’d be able to keep my costs almost as low by living with roommates (but definitely not in a studio!).
Transportation. Here’s one area where New York beats the rest of the country. For most errands I don’t need anything but my own two feet. Within five minutes, I can walk to three different grocery stores, a good variety of restaurants and coffee shops, a laundromat, a post office, a Fedex shipping facility, a dry cleaner, a barbershop, a gym, an art university, and a beautiful public park. If I do need to go elsewhere, that same five minute walk takes me to a train station that for $2.25 or less, will take me anywhere I want to go in New York City. Because of that, I don’t own a car, so no car payment or car insurance payment. My total transportation cost is only $104 for a monthly subway pass, reduced to $70/month through an employer sponsored tax deduction (available to most workers in NYC).
Food. I spend $200/month on groceries for my regular meals (this doesn’t include restaurant spending). If you break that down, that’s about $7/day. At first glance, that may not seem like much, but most meals generally don’t cost more than a couple of dollars if you buy the ingredients and prepare them yourself. For example, if you take a week to eat a $4 box of cereal and a $3 half gallon of milk, you’ve only spent $1/day for breakfast. A tasty lunch can be made from a $1 can of beans (dry beans are even cheaper), some rice, and spices. I may even spend more than most people on my meals because I like to buy organic ingredients; on the other hand I’m a vegetarian so I save money by not purchasing meat or fish.
Health Care. Fortunately, the cost of my health insurance premiums are paid in full by my employer. To limit any out-of-pocket expenses for doctor visits, I focus on preventative care. I go to the gym regularly, walk when I can, and make sure to eat right. Hopefully it’s working since I only seem to need to go to the doctor once or twice a year. If I had to pay for health insurance out of pocket, I’d consider getting a high-deductible health care plan with a health savings account, but that’s an extensive subject for another article. My health care costs are only $30 or $40 per year for a couple of doctor visits.
Communication. I spend $15 for a prepaid cell phone that provides unlimited text messaging and some prepaid talk minutes. You don’t have to be as extreme as me though; other cell phone plans I’ve seen offer generous text messaging and talk plans for $30/month or 300 talk minutes and unlimited Internet usage for $35/month.
Personal Care. I estimate I spend about $25/month for personal hygiene products like soap and toothpaste, laundry items, and dry cleaning.
Total monthly housing, transportation, food, health care, communication, and personal hygeine costs: approximately $760/month.
If we’re honest with ourselves, we have to acknowledge that anything we purchase that doesn’t fall into these categories isn’t something we truly need but something we want. The good news is by saving so much money on our needs, we’ve freed up some money to indulge a bit in our wants. And being an extreme saver doesn’t mean you should live a Spartan lifestyle where you feel deprived. We just need to make sure we set a limit on things we buy that we want but don’t really need. The way I spend money on my “wants” without going overboard is I separate a predetermined amount from my regular funds each month to spend and I simply do not purchase anything else once I’ve reached my limit. The limit can be different for everyone, but for myself I’ve allowed about $240/month. That’s $60/week, which is enough for me to live a middle class lifestyle: to go out to eat a couple of times a week, purchase clothing and other items that I need, and take a couple of vacations a year.
Finding inexpensive ways to enjoy your free time makes your money go even further. Personally, although you might not get this impression from tourist books, I find living in New York City is ideal for low cost ways to spend your free time. There are world class museums, art, and theater that you can often attend for discounted or no cost. There are lots of cheap, tasty places to eat where a meal can be had for under $10. You can visit a gorgeous public park with an unbelievable view of the city skyline for free and bring along a picnic to enjoy the day. Even just walking down the street can provide free entertainment and adventure. Last week, I planned to meet my brother for lunch and found myself in the middle of an impromptu, makeshift carnival, complete with people wearing monster masks on stilts.
So there you have it. Being an extreme saver on a budget of $12,000 in New York is possible. But even if you don’t live in New York, as it’s often said, if you can make it here, you can make it anywhere.