How Do People Live On Less Than Six Figures In An Expensive City?

Chrysler Building, NYC

Have you ever wondered how people can live in an expensive city on less than six figures? I wonder this all the time as someone who has lived in New York City and San Francisco for over 21 years.

New York would be the greatest city in North America if it weren’t for three things: 1) Tough weather for half the year, 2) Never ending crowds, and 3) outrageous prices!

I’m currently spending the first week of my four week vacation/blogging research tour in Manhattan and I’m blown away by how much more expensive Manhattan is than San Francisco.

I used to live downtown when I worked in finance from 1999-2001 as a fresh college grad. My base salary for the first half of the year (started in July) was $40,000.

Even then I thought $40,000 was pretty low as I could only afford to share a $1,800/month studio with a buddy of mine from high school after contributing to my 401(k).

Thankfully our salaries were raised in the second year to $65,000 after Wall St. decided to pay new first year analysts $55,000 instead of $40,000. Still, a base salary of $65,000 wasn’t much to write home about when one-bedroom condos were selling for 5X.

Fast forward 14 years later and the 600 square foot one bedroom condos in decent areas of Manhattan are now trading for $750,000+! I’m pretty familiar with these prices because my studio roommate actually bought a $325,000 one bedroom condo near the United Nations in 2000.

He’s been looking to upgrade to a two bedroom condo with his future wife, but he’s taken aback by the ~$1.5 million price tag. They just might move out of the city instead. If a condo owner who saw his property’s value grow by 130% can’t even afford to comfortably upgrade to a two bedroom, can you imagine what a renter during this same time period is thinking?

Breaking Down How Little $100,000 Goes In An Expensive City

First of all, making $100,000 a year puts you in roughly the top 10-15% of nationwide income earners. $100,000 is a great achievement no matter where you live, but it’s not that great if you live in an international city such as New York, San Francisco, Hong Kong, London, Tokyo, or Paris. It’s really important for those who make much less to recognize high salaries are generally earned in expensive locations.

Let’s break down what a typical $100,000 earner will get after funding their retirement savings and taxes. There is no excuse for anybody making $100,000 or more to not max out their 401(k) for a more financially sound retirement. Here is my 401(k) post by age for your reference.

$100,000 Income Budget In An Expensiv City

Gross Income: $100,000

401(k) Contribution ($19,500 max for 2021): $17,500

Taxable Income: $82,500

Effective Tax Rate (includes city, state, federal, SS tax, health insurance): 30%

Net Income: $57,750

Monthly Net Income: $4,812

Savills UK, a property broker ranks NYC the #1 most expensive city in the world as of 2H2016

Expenses From A Frugal Friend Making $100K In An Expensive City

Rent: For One Bedroom On 71st and 2nd Avenue: $3,300

Food: $700. He eats out about 30 meals a month and cooks his remaining 60 meals at home (breakfast, lunch, dinner). Groceries are not cheap in Manhattan.

Beverages: $100. He only goes out for drinks with his friends once a week. Beers are $5-$15 and cocktails are $8-$15.

Cabs: $100. From the Upper East Side to Grand Central costs about $15 one way. It’s $20 to go all the way downtown. He tries not to take cabs, but it’s an inevitability.

Subway: $112. It’s $5 to commute round-trip. Back in 1998 one-way fairs were only $1. $112 is now the monthly all you can commute pass cost.

Cable / Internet: $100. Pretty standard package for basic cable and internet.

Entertainment: $200. This category includes movies, shows, and events. Movie tickets cost $15 and Broadway shows cost $50-$100 for the cheaper tickets.

Mobile phone: $50. Family plan i.e. subsidized.

Travel: $150. Cost to go see his family in New Jersey and the occasional fishing or skiing trip up north.


Not Living It Up On $100K A Year In Income In An Expensive City

As you can see from my example above, someone making $100,000 a year in New York City is NOT living it up. Going out once a week with friends is hardly excessive in a city that seriously never sleeps. He does his best to walk or utilize the subway and his entertainment budgets is pretty tiny for all the NYC has to offer.

At least he is contributing a good amount to his 401(k), which is crucial since he has nothing left in disposable income. Contributing to his 401(k) should result in over $200,000 in 10 years due to company match and conservative performance estimates. If he wasn’t contributing heavily to his 401(k), he’d have an extra $1,200 a month to spend.

Finding a decent one bedroom for under $3,000 is not particularly easy unless you know someone who has a rent controlled apartment. If you want to lead a less comfortable life, then you can find studios for around $2,000 a month.

But, are you really going to be happy still living like a college student making $100,000 a year? Probably not since you’re closer to 30 than 20. Where are your parents, girlfriend, boyfriend, and relatives going to sleep? One solution is to find a significant other who is willing to split your $3,300 a month one bedroom cost.

Going Out To Eat Costs A Fortune Too

Lunches in NYC cost on average $10-15 after tax and tip. You could eat a Shackburger at Shake Shack and drink free water every lunch for $5.01 like I did for two days, but you might die of heart failure at a young age. You might also turn so big that your armpits emanate massive odor and heat on the passenger next to you like I felt sitting in the middle sit on a red-eye flight over!

There’s a saying by New Yorkers to expect to burn $100 each evening you go out. After going out every evening I can see how this saying is true. My dinner at Strip House cost $77 followed by $35 of drinks at Sparks Steakhouse where a family friend works. Then of course I had to pay another $15 cab ride back home because it was 1am. At least my buddy and I split the bill.

Of course we could have gone to a cheaper place to eat like Kunjip in Korea Town for a more reasonable $25 a person. We could have drank our alcohol at home and ordered water at the bar instead. But come on. It’s good to live it up once in a while.

The Ideal Income To Live In An Expensive City

I believe $200,000 a year per person is the ideal income for maximum happiness. To put things into perspective, a 30-year-old second year Associate makes anywhere from $170,000-$250,000 on average in finance as do second year lawyers. 32 year old doctors who don’t do fellowships make $150,000-$250,000 as well.

If two, $200,000 income-earning people can combine forces, then even better. Nowadays, a family earning $300,000 a year in an expensive city is considered middle class.

$200,000 Income Breakdown

Gross Income: $200,000

401(k) Contribution: $17,500

Taxable Income: $182,500

Effective Tax Rate (includes city, state, federal, SS tax): 35%

Net Income: $118,625

Monthly Net Income: $9,885

$200,000 Budget Breakdown

Rent For Two Bedroom In Mid Town: $5,500

Food: $1,000. Now we can afford to eat four $100 dinners a month with $500 left over for lunch and breakfast.

Beverages: $500. You can go out twice a week now or feel more comfortable buying a couple rounds of drinks for three friends four times a month.

Cabs: $200. Instead of taking the subway when it’s super hot or really late, you get to take a $15 cab ride a little more often for convenience.

Subway ($2.5 one way): $114. Same old monthly commuter plan.

Cable / Internet: $100. Same old package.

Entertainment: $500. A little more breathing room here because now you can afford to take out a date!

Mobile phone:  $100. Upgrade to a larger data package because you’re on the move more often.

Travel: $300. A couple more trips out of the city. This time, to the Hamptons.

Total Expenses: $8,300


$200,000 A Year Is Good, But Not Great Income

We can argue the ideal income to live in an expensive city all day long. But as you can see from the example above, $200,000 will allow you to contribute to your 401(k), save $20,000 (10%) in after tax income and spend freely on much of what NYC has to offer.

Anything more than $200,000 is nice, but higher tax rates are really going to eat into your earnings. It also usually takes more effort to earn in the $250,000+ range so that’s a negative.

Here’s another example of a single mother with a child. It’s clear she’s not living it up on a $200,000 income.

$200,000 Income And Still Not Feeling Rich

Examples Of Everyday Expensive Things You Can Buy In NYC

Crepe Cake Lady M in an expensive city
Lady M Confections on 78th St. is absolutely amazing. You can get a 20 layer crepe cake for $10 after tip and tax.
Shackburger at Shake Shak for $8.85.
Shack Stack at Shake Shack for $8.85. Get the Shack Burger for $5.01 instead.
bag of cherries in an expensive city
Bag of Rainier cherries at Fairway for $19! $8.99/lb
666 Park Avenue TV Show Building
The Ansonia on 74th and Broadway. Two bedrooms are $7,000-$8,500 a month
Roof deck at 200 Water St. downtown FiDi. Two bedrooms are $5,000 a month.
Roof deck at 200 Water St. downtown FiDi. Two bedrooms are $5,000 a month.

Share How You Live Comfortably In An Expensive City On Less!

Given only 13% of Americans make more than $100,000 a year, it’s clearly possible to have a good life living in an expensive city making less. This goes for folks living in other expensive international cities as well. Some of the things I’ve thought of that allow people to live and save are:

  • Co-habitating with a girlfriend, boyfriend, spouse, or roommate.
  • Living in a rent controlled apartment.
  • Working two or more jobs.
  • Residing farther away from downtown
  • Living off the generosity of one’s parents.
  • Working in the food industry so you don’t have to pay for your meals.
  • Working as a property manager or hospitality industry to save on rent costs.
  • Living for free in your parent’s apartment.

Housing Is The Biggest Issue

If you can take care of your housing situation everything else can be overcome with cheaper options. For example, you can eat McDonald’s for dinner rather than go to Le Bernardin. Entertainment-wise, you can play frisbee in the park instead of paying $100 for a Broadway show.

I do wonder how parents afford to send their kids to private schools given public school systems in big cities are often in need of improvement. There’s the Citywide Gifted & Talented programs and Anderson, Hunter, Lowerlab, and Nest are all great elementary public schools.

Then there’s Stuyvesant and Bronx Science for public high schools. I’m not sure what parents do if their kids aren’t smart, but I’m sure there are scholarships for everyone.

If you live in an expensive city and make less than $100,000 a year, I’d love to hear how you manage to live a comfortable life! Please also mention your savings rate as well. I guess it all depends on what your definition of “comfortable” is and your age.

Related: Scraping By On $500,000 A Year: Why It’s So Hard For High Income Earners To escape The Rat Race

Recommendation To Build Wealth

Manage Your Finances In One Place. If you currently live in an expensive city or plan to move to an expensive city, I recommend signing up with Personal Capital, a free online wealth management tool to keep track of your income and expenses. Money drains out like water if you don’t keep a tight lid on your cash. I live in San Francisco and Personal Capital keeps my budget in check by providing me clear snapshots of my finances. They even send me a weekly overview of my net worth progress over email which I highly appreciate.

My favorite feature is Personal Capital’s Investment Analyzer tools that assess your portfolio’s risk and fees. I discovered I was paying $1,700+ in annual 401(k) fees I had no idea I was paying!

Personal Capital Retirement Planner Tool
Are you on track? Sign up for free to plan for your retirement future

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