1. Create a Budget (Mel)
There are so many apps out there that will help you to track your spending and manage your finances (Mint, BillGuard, Wallaby, etc.), but even a simple MS Excel spreadsheet will do the trick. Start off with your fixed costs (i.e. rent, utilities, transportation) so you can calculate the exact minimum amount you must shell out each month in order to continue living in the city. For most people, rent/mortgage payments will be the biggest burden on their salary and the average New Yorker spends about 2/3 of their annual income on rent alone, though the rule of thumb in most other cities is 1/3 of your salary should be spent on rent. Honestly, if the condition of your living quarters isn't a priority to you and all you need is a roof over your head, try to find the cheapest, livable apartment you can find to relieve some of that burden.
After figuring out all of your fixed costs, calculate your necessary variable costs (i.e. groceries, medical expenses, etc.) before moving onto your non-essential (clothing, eating out, activities) expenses. Since you probably will not know exactly how much your budget needs to be when you first move to the city, monitor your spending habits closely the first few months of living in New York and make the adjustments accordingly. Honestly, there are times when I go over my monthly budget (i.e. holiday season), but when that happens, I do make an effort to scale back the next month in order to make up for the previous month's "loss". To help put things in perspective, my rent is a little less than 30% of my after tax salary and I typically spend around $116 a month for transportation cost (unlimited Metro card, and I keep my Uber costs to a bare minimum/$0). Since I do most of my grocery shopping in Chinatown, grocery expenses average out to about $150 - $200 a month and I allocate another $150 to eating out which brings my total food expense to a grand total of $300 - $350 a month. To help reduce your miscellaneous costs, I recommend making your morning cup of coffee/smoothie at home, packing your lunch 3-4x a week, and skipping a few happy hours every few weeks. Not tracking what seemingly may appear to be nominal expenses can end up eating up a significant portion of your monthly earnings. I found that logging every expense, no matter how small, into a journal of mine helped me become more cognizant of what I was spending my money on a day-to-day basis. It has also allowed me reevaluate what I determined to be worth spending my hard earned cash on. $8 smoothies are a no-go, but a $2.00 breakfast bagel from Dunkin Donuts is worth it in my book because it means I am not skipping breakfast).
Jess: I've always been a planner, and budgeting is extremely important to me since it helps me to keep my finances on track. I use a basic Excel sheet, and usually plan my budget in quarters. I log every purchase, no matter how small and regardless of payment type (card, cash, gift card), and sometimes I will add a note for my own knowledge on what I spent my money on. It seriously keeps me very sane to have everything written out, and as difficult as you may think it is to remember to do this everyday, it's become so second-nature to me that it isn't even a concern anymore. Develop this healthy habit, and I promise you will thank yourself later for it.
2. Invest, Invest, Invest! (Mel)
Growing up, financial markets were a constant topic of discussion, and the importance of investing was hammered into my brain very early on. On the most basic of terms, investing is essentially allowing your money to work for you. We all know that in order to survive and pay for our necessities, we need to earn income, and the majority of the human population does this by holding down a job that pays an annual salary. Think of investing as another way to make money, except you don't have to put in your 40 hours a week and you don't even have to be awake to do it. Depending on the type of investment vehicle (stocks, bonds, mutual funds, real estate, etc.) you invest in and the investment strategy you use, you will have different levels of risks and returns. Spend the time and do your research in order to find the most appropriate strategy for you! Furthermore, another benefit to investing your money is that long-term capital gains (earnings from investments held longer then 1 year) will be taxed at a preferential rate. Depending on your taxable income, your long-term capital gains will be either taxed at 0% for those taxpayers who normally fall under the 10 -15% tax bracket, 15% for those that fall under the 25-35% tax bracket and 20% for those who fall under the 39.5% tax bracket. Therefore, not only is your money working for you, but you are paying less taxes on your long-term capital gains than your own salary! Investing can definitely be a daunting world to step into, but it's not as intimidating as it may look. If you are first starting off, use Google to your advantage or ask friends and family members who may have some basic or even advanced knowledge of investing to give you advice.
3. Stretch your Dollar (Jess)
When you live in a city that has one of the highest costs of living in the world, stretching every dollar from food to entertainment is the key to not feeling like you are constantly broke, especially when you first started working out of college. It's extremely tempting and easy to go overboard on your spending when everything is at your fingertips. Seriously, I have everything I could ever want and need within steps of my apartment door, and I could easily spend every cent I made if I decided I needed to buy this or eat that as I walk down the street. All you can eat sushi for dinner? Check. Drug store with overpriced toilet paper? Check. Insomnia Cookies? CHECK! Luckily, New York City can also be affordable if you make the right decisions on where you spend your money. There are so many things you can do here that will not cost you a dime, and equally as many cheap eats options. From walking the High Line and browsing Chelsea Market to walking the Brooklyn Bridge and enjoying the free summer concerts in Central Park, some of my favorite activities to do with friends or on dates are the ones that don't cost anything. Similarly, I love checking out cheap eat spots, and the best part is that you can hit up multiple places for the price of one bougie weekend brunch. Or instead of eating out, why not cook an extra few meals at home so you can save up to go to that fancy restaurant for Restaurant week? I am also a Groupon fan, and definitely browse every so often for great activity and restaurant deals. I've been able to get quite a few free/super inexpensive meals by stacking extra coupon codes on top of existing sales! Obviously, some of the things we really want to do are worth paying for, but definitely prioritize what you are willing to splurge on and what you can sacrifice.
Corporate Deals: Many companies offer employees discounts on everything from movie tickets to electronic goods. Some may even offer points for purchases that you would have already made anyway, and those points can add up to extra savings in the long run. I personally use my Perks at Work benefits for the movie tickets, since I can save upwards of $5/ticket, which to me is like getting handed a free cup of matcha or an ice cream cone. My company also reimburses a large majority of my health and fitness expenses, which has helped me to save a ton of money over the last couple of months. I currently get my monthly metro card from WageWorks like Mel does, which directly comes out of our paychecks and helps us save 30% on transportation since it is pre-tax. It's a monthly savings that adds up over time, and there is no reason not to take advantage of the benefit since we would have purchased the pass regardless!
Always make sure to read or ask about what employee discounts and benefits you can take advantage of, and make sure you use them! If you personally don't have certain perks, maybe a close friend or family member does. Have them help you out by buying that cheaper plane ticket or camera that you may be looking to purchase.
4. Make Retirement a Priority (Jess/Mel)
As Benjamin Franklin once said "In this world nothing can be said to be certain, except death and taxes", and we plan on retiring long before death comes knocking on our doors. We understand that locking your money away in a 401k account for 40 years may seem a bit unappealing to a fresh college grad who just started earning a steady income, but we promise that there are many benefits since saving for retirement is essentially investing for the future. Ideally, you would start saving up for retirement the minute you receive your first paycheck because of the concept of compound interest. No truer words were ever spoken than Albert Einstein's "compound interest is the eighth wonder of the world. He who understands it, earns it..he who doesn't..pays it." Compound interest is essentially interest on interest, so your own money is making even more money for you. As we have stated before, any and all earnings like dividends and capital distributions are tax deferred and reinvested in your 401k account. There is tremendous power of compound interest after 40+ years. Better yet, most employers will match a certain percentage of your retirement contribution, which gives you even more of an incentive to start contributing as much money as you can into your retirement account because your employer is essentially giving you free money! Now who could say no to that?
Another huge advantage that some people may not consider are the massive tax benefits you can reap from investing in your retirement. Currently, the maximum yearly 401k contribution remains unchanged at $18,000 for those under 50 years old, and $24,000 for those over 50. The amount you put away in your 401k is pre tax and is therefore tax deferred. Ideally, if you can afford it, you should always max out your yearly 401k contribution amount ($18,000) to reduce your taxable income, which in turn might even drop you down to a lower tax bracket! Do keep in mind that when you eventually retire and start withdrawing money out of your 401k, you will need to pay the taxes, but by then, your taxable income and tax bracket will be much lower since you will not be bringing home an annual salary. You may also want to look into investing your money in a Roth IRA. Although it does not provide a tax break for contributions, earnings and withdrawals are generally tax-free. Read more about the many benefits of investing in a Roth IRA here!
Thank you so much for taking time out of your day to read our blog! We certainly have learned many life lessons over the ears, and our financial sense is still being developed as we continue to work and experience "the real world". These are some of the major tips we both have for living in New York City as two young women who have just joined the workforce after graduating college. We kept this post pretty high level, but will be taking a deeper dive into each topic at a later date!
P.S. Be sure to check out Robert Kiyosaki's Rich Dad Poor Dad for more helpful information on how to manage your money and gain control of your financial future.