Quick, name a city in the U.S. with a high cost of living. Go!
If you’re like many people, you probably said New York City.
Maybe Los Angeles. Miami. San Francisco.
But let’s focus on New York City, one of the world’s cities with the highest cost of living. And more importantly, how living in an expensive city will murder your chances of building wealth if you aren’t careful.
Here’s an unpopular fact: Most people pay more to live in an expensive city than they get in additional salary.
It’s true.
That doesn’t mean living in an expensive city like NYC is “bad.” It just means it will take you way the hell longer to build wealth.
And you need to be aware of that.
Let me ask you another question: What’s the equivalent of a $100,000 salary in New York City after adding in the cost of living?
Take a guess (and don’t look it up because that’s cheating).
How High Cost-of-Living Cities Murder Wealth
Get this: Earning $100,000 in New York City is the equivalent of about $36,000 in a normal cost-of-living city.
That means if you’re pulling down $100K in New York, you’re really only earning about $36,000.
There’s no getting around the fact that building retirement-enabling wealth in an expensive city will take a lot more money. It costs a lot more money compared to a less expensive city.
“But Steve, I like the culture! The restaurants! The entertainment! Living in a cheaper city is booooooring.”
I get it. Expensive cities offer a lot more to do than less expensive ones. And expensive cities also tend to be where the good jobs are.
And if those things are important enough to you, that’s fine. No judgment.
This email isn’t to convince you to move out into the country.
Here’s the point: Understand your city’s impact on your wealth.
Then, consciously build a spending plan that respects that impact.
How to build wealth living in an expensive city
If I lived in NYC (or any other expensive city), here’s what I would do.
Step 1: Track every dollar
You’ll never truly understand how much you’re spending if you don’t track where your money is going. This includes rent, transportation, food, restaurants, entertainment, etc. Track everything.
Step 2: Build a 3-month emergency fund
A 3+ month emergency fund will keep you from going into debt when unexpected expenses happen (and they will happen). This is especially true if you own a car or a home. Keep your e-fund in a savings account.
Step 3: Make entertainment a reward
Instead of free-wheelin’ your entertainment spending, make it a reward. You’ll spend less and enjoy it more. For instance, spending on concerts, sporting events, and Broadway shows adds up insanely quickly.
Step 4: Negotiate rent
Yes, you can negotiate your rent. If you’ve been a good tenant, try negotiating your rent lower (or at least keeping it the same).
Step 5: Proactively ask for raises
Never be happy with those 3% cost-of-living raises. Be proactive. Make sure your salary continues to increase. In expensive cities, you need more significant raises to keep up, financially.
Step 6: Make cooking at home the norm
Cook at home most of the time. Go out every once in a while. I fell into this trap when I was younger, spending hundreds on restaurants every week instead of cooking at home. It cost me a lot of money.
Step 7: Use public transportation instead of a car
One big advantage of a city like NYC is transportation. No car means no maintenance. No gas. No car insurance. No stress. Public transit is a great option that’ll save cash and the environment. Win-win!
Step 8: Freelance, freelance, freelance!
Start your own thing – whether it’s in line with what you do for a living or not, it doesn’t matter. Nothing wrong with walking dogs if you’re a software developer. People spend a LOT of money on their pets.
Chat next week!
– Steve
