There are three things that will take up the majority of your paycheck: housing, transportation, and food. Transportation and food costs can easily be lowered, but housing costs cannot. Where you live dictates how much your housing costs are and there’s not much you can do to change this. With that being said, most of us still seem hell bent on living near the hustle and bustle of the big city. The big question is, can you actually afford to do this? Unless you’ve got a healthy income, the answer is probably a hard no. I’m sorry. You can argue with me all you want, but at the end of the day I’m pretty sure your landlord won’t take an I.O.U. and a handful of tear-soaked dollar bills.
First off, let’s talk about how much you have to spend on rent. The golden rule is around 30% of your salary. Fixed rules are generally stupid and don’t take into account a variety of factors (such as if your income is $20k a year or $500k a year), but lenders often use a similar percentage (28%) to determine how much mortgage you can afford and we need to start somewhere. Let’s say you picked a degree with no job prospects and you’re now working at Starbucks. As of this writing, a barista makes around $9.50 an hour. Multiply this by 40 hours a week, 52 weeks a year, and you’re making $19,760. Using our calculation above, this means you can afford to spend $5,928 a year on rent, or $494 / month.
Now let’s look at the cost of rent in a major city. Let’s assume you’re going to get a roommate and get a 2 bedroom in Boston (I’m excluding SF and NYC for obvious financial reasons). A quick glance on Craigslist shows reasonable 2 bedrooms going for around $2,000 a month, which means to share an apartment would cost you $1,000 a month.
Can you afford this? No, $494 < $1000. Even if you and your significant other have similar jobs and share a room, you’re still at the top of your budget. Say you have a cat, and it unexpectedly gets sick. You take it to the vet and get it some medicine. Congratulations: you now have a healthy cat, but no money for rent. People find themselves in financial situations like this all of the time.
Let’s instead assume you picked a degree with some job prospects. You’re fresh out of college, and you’re pulling in $40k a year (I’m being generous here, because according to my research at this given point in time the average millennial earns about $36k, but I digress). According to the 30% rule mentioned above, this means you have about $12,000 per year to spend on rent, or $1,000 a month. Can you afford this? Yes, but barely. If you live in a 2 bedroom with your own room you’re right back at the top of your budget again, and one fiscal mistake away from financial ruin.
Even if you make more than this, then yes– it’s technically possible to afford to live in the city. But is it smart? No. Spending 30% of your salary before taxes means that you’re using up 1/3rd of your pre-tax income just to put a roof over your head. You now get to use the remaining 2/3rds to pay for taxes, food, transportation, health insurance, student loans, and all of that other fun stuff just to be able to live. By the time you look at your bank account after all of your financial obligations are paid off, how in the world are you going to pay for the things you should be paying for (retirement, emergency fund) and the things you want to pay for (dinner and drinks with friends, hobbies, vacations, etc.)?
It’s expensive. It sucks. It’s hugely unfair, and I know what you’re going to say next:
But I’m young, and I want to take advantage of all the city has to offer! I don’t want to waste my 20’s living in a small town, where the only form of entertainment is the one movie theater and the chain restaurants!
Again, it sucks and it’s unfair, but that’s life. I’ve seen countless people ignore my advice, cram 2 or even 3 people into a single bedroom apartment and slave away at low paying jobs just so they can live in the city in their 20’s. This is only a viable strategy if you plan on moving into a high paying job within the next few years. However, almost every single person I’ve seen try this strategy out has ended up penniless, rapidly approaching 30, and stuck in a cycle where they’re working a job they hate just to live in the city they have now grown to loathe.
The silver lining to this dark, dream destroying cloud is that the alternatives truly aren’t that bad. Unless you have a job that requires you to work in a city, you can simply move anywhere else. Let’s look at the cost of renting slightly outside of a major city. Let’s say you’re going get a roommate and get a 2 bedroom in a place like Leominster, MA. Leominster is only an hour’s drive from Boston, so if you want to go into the city on the weekends and enjoy the amenities there that’s easily something you can do. A quick glance on Craigslist shows reasonable 2 bedrooms going for around $1,000 a month, which means to share an apartment would cost you $500 a month. This means you would save $500 a month over living in the city, a full 50% savings in rent costs.
Moving out of the city into a town has many advantages. Many towns have a “downtown” area you can live in for a comparatively cheap price, and this will get you some of the amenities of a major city while keeping the costs reasonable. Some towns are reasonably close to a major city, which means you could drive into the city or take a train on the weekends and visit your friends. Crashing on their couch should cost you nothing more than drinks at the bar or a brunch, and this is something you can now afford. If you really want to be a baller you can always rent an Airbnb once a month in the city, and you will still end up well ahead financially. The biggest advantage to this strategy is fairly obvious: you won’t be dirt poor anymore. While it is true that jobs outside of the city tend to pay less, with your rent being so much lower you should still be able to fund your retirement, save money for emergencies, go out with friends, and spend your money on the things that you actually value. Unless you have a truly compelling reason to live in the city, the downsides outweigh the upsides by a large margin.
Actually, let’s talk about that for a second as well: what do you think you’re missing out on? No offense, but unless you’ve got a great high paying job (in which case you probably wouldn’t be reading this article) or you’re an artistic type who thrives in a scene that does not exist in a more suburban location, you’re not fully taking advantage of the city anyways. If you find yourself working a million hours just to come home to your crowded apartment, eat cheap takeout and watch Netflix, what exactly are you doing in the city that you couldn’t be doing elsewhere? Are you truly going out to concerts, museums, new restaurants, parks, etc. all the time, or are you just sitting on your couch? If you’re not taking advantage of the city, why are you paying the premium to live there?
My major takeaway is this: If you want to live in a major city, yet your job doesn’t pay you enough to live in said city, you need to rethink your entire life strategy. You don’t have to struggle financially every single day of your life, and to think that the city is the only place where “things are going on” when you can’t even afford to do any of these things is an incredibly naive and illogical way to look at things. Step off of the hamster wheel, pack up your stuff, move out, save a ton of cash, and start doing the things in life that matter to you. The city will always be there, sitting idle as a destination until your next adventure or patiently awaiting your triumphant return.