Cost of living in a big city – If you ask 100 people how much money they need to live comfortably, you might end up with 100 different answers. There isn’t one “right” answer when it comes to financial stability and security. Most people who have enough to live on tend to use some kind of budgeting rule, like 50/30/20. That means 50% of your income goes to necessities, 30% goes to splurges and entertainment, and 20% is saved away.
While that budgeting rule might sound great and works well for some people, not all Americans can do it. A lot of it has to do with where you live and the cost of living associated with that area. If you want to reside in a large city, budgeting with those percentages can feel next to impossible.
So, if your dream is to move to one of the country’s bigger metropolises, what can you do? Is there a “right” way to budget for big city living, and can you really afford it?
Let’s take a look at what you should consider financially before moving to a city, and the pros and cons of how it might impact your bank account.
When You Plan to Own a Home
Renting is a popular option in most major cities. In fact, as of 2018, renters became the majority population in 22 big cities across the U.S. But, apartment living isn’t right for everyone. Maybe you have a larger family, or you just want a place to truly call your own.
To do that, you have to consider all of the potential costs of buying a home in a city – and everything that goes with it.
In most cases, buying a home requires you to make some kind of downpayment – usually 20%. But, that might not be in your budget right now, especially when you consider the average price of a house in a place like New York City is over $700,000. So, what can you do if you can’t make a downpayment of 20%? If you really have a dream property in mind, there may be other options.
First, consider that the 2020 median downpayment for first-time home-buyers was just 7%. The idea of a high downpayment is something that has been around for years. For some people, it’s a reality they have to face. But for many, it’s not. Even if 7% seems too high, there are programs available that can help you.
For example, some loan options allow you to put as little as 3.5% down. Other options like VA loans and USDA loans require no downpayment. These are more commonly available for first-time home-buyers. If you’re interested in a particular property, make sure to work with professionals within the homebuying process. The right people will have your best interest at heart and should be able to walk you through all of your possible payment options.
Consider the Cost of Everyday Living
In addition to the cost of buying a home in a big city, the cost of everyday living is what can really end up doing the most damage to your bank account. Cost of living is different everywhere, of course. But, some major cities in the country have an extremely high cost, based on a combination of housing prices and everyday expenses.
Data from AreaVibes compared some of the U.S.’ largest cities’ costs of living with the national average of 100. Here’s how some of them ranked:
- Washington DC – 152
- Seattle, WA – 159
- San Francisco, CA – 202
- New York, NY – 166
- Los Angeles, CA – 146
It’s important to note that these upcharges can come as a shock at first. The borough of Manhattan alone features a 40% premium on groceries and 60% on movie tickets compared to the national average.
Everyday costs in a major city include everything from basic living expenses to extras like public transportation or paying for parking. There are even some unexpected costs to consider, like installing extra security in your home or small “monopolies” in certain areas that force you to pay higher prices for things like groceries and food-on-the-go.
Knowing how to keep your finances in order and being able to budget is crucial to cover those higher everyday expenses. If you’re not sure how to do that, you’ll likely have to readjust a “standard” budget model. For example, you might not be able to get away with spending just 35% on housing. You might need to shift other areas of your budget to spend more like 50% on your housing costs. To “make it” with your everyday expenses, you’re going to have to build a budget that allows for flexibility and a potentially higher tax rate.
What Are the Pros and Cons of City Living?
Before you decide whether a move to the city is right for you and your finances, take the time to consider what you want to gain from such a move.
From a financial standpoint, some of the positives include:
- Possibly not needing a car thanks to public transportation
- There are more job opportunities
- Plenty of things to do and experience for any budget
- Better airports if you need to travel for work
But, between the high cost of living and higher crime rates, it’s important to weigh those “pros” heavily. Of course, there are plenty of other reasons people choose to move to big cities. They are filled with excitement and opportunity and are often the “picture” of what people think of when the United States comes to mind.
If you want to avoid the financial stress of living in a big city, review your finances, make budget cuts, reach out for help when you need it, and set goals for yourself. Having a clear plan in mind will make it easier to determine if you can live comfortably or whether a big city move is right for you. There are positives to consider, and maybe the move isn’t even your choice if you’re relocating for a job. Whatever the reason, understanding what you can and can’t afford and being willing to shuffle your budget will be the key to financial survival.
