#BuildYourOwnBudget: Best Budgeting Strategies for Big City Living
By Bianca Flowers
Welcome to the first edition of the Build Your Own Budget series! Drawing on her experience as a business reporter, Bianca Flowers created this multimedia series to enlighten and educate millennials on how to escape the paycheck-to-paycheck spending pattern, practice good saving habits and get a handle on some basic investing principles– even if you’re a novice. Informative, yet trendy, this multimedia series is bringing some flavor to finance where we’ll feature some top financial gurus, trailblazing Gen Y entrepreneurs and cash commentary on how you can start budgeting your money for a better future.
We recently spoke with Nela Richardson, Chief Economist of Redfin, the national real estate brokerage about some key budgeting strategies to keep in mind when you’re moving or living in a big city.
Best Budgeting Strategies for Big City Living
1.) Millennials are moving into metro cities more than any other generation in history. What do you think has caused this shift and what is the appeal for them wanting to move to metros?
Over the last 20 to 30 years, cities have become very popular places to live for all generations. What makes millennials unique from their parents and other previous generations is the way they are delaying marriage and starting families. Older millennials are still getting married and having children, just at a later age. This means they have time between college and settling down to focus on their careers and social lives, so we see educated millennials moving to where the jobs are, which has been centered in major metro areas. These places also offer urban lifestyles with apartment living and nightlife options within walking distance.
We’ve seen an increase in places we call “urban suburbs” and we expect to see further growth in this type of neighborhood outside of major cities across the country as more millennials start families and as developers respond by building more dense housing, such as townhouses near transit lines.
2.) What are some common mistakes that millennials make when relocating to a big city?
Paying too much in rent is one. Ideally, you should pay less than 30% of your income on rent, but typically, in expensive cities people often end up spending more like 35-40% on rent. Still, in the long run, you’ll find it’s worth it to make sacrifices on your first apartment like living a little farther from the subway or bus stop than you might like or forgoing the unit with the renovated kitchen.
Another is not considering smaller, more affordable cities. As major coastal cities have become unaffordable in the past several years, more young people are choosing to 2nd-tier cities that increasingly offer abundant job opportunities as well as great restaurants, trendy bars and vibrant cultures. It’s often not the case that you have to move to NYC or San Francisco to start your life and career out on the right foot.
3.) Give me 3 tips on ways on how they can budget properly but still enjoy their life in the big city?
Take advantage of city amenities: Using public transportation can greatly reduce commuting costs associated with owning a car like insurance and parking which are high in cities. Free concerts in the park and museums are ways to experience the big city on a budget.
Take your lunch to work and/or learn to cook at home: Eating out is expensive and can quickly whittle away hard earned cash. Instead meet your friends for drinks or coffee or better yet, invite everyone over to your place for a potluck and save dinners out for special occasions.
Think about the future and start contributing to a retirement account: The one advantage millennials have when it comes to investing is time. The sooner your start saving the bigger your nest egg will be at retirement. Many companies match employees’ retirement contributions, so not putting anything away means saying ‘no’ to free money.
4.) Let’s switch gears to saving! Budgeting is one thing, how can one get into a habit of saving when you’re trying to keep up with maintaining basic necessities in big city life?
In addition to starting to contribute to a retirement account, it’s important to save enough money and set the savings aside as a cushion in case of unforeseen financial changes like a job loss or medical problem. I recommend building up savings that would cover three months of your typical expenses for this purpose.
If you enjoy eating out, going to shows, or going on an occasional vacation, it’s also a great idea to start a fund that you regularly contribute a small portion of your paycheck to for those kinds of “fun” expenses that can help you enjoy city life.
Finally, set a clear long-term goal that you’re saving for, whether it’s buying a home or going back to graduate school. Do your research to start planning. Search for homes on Redfin.com, and get a sense of what you would need for a downpayment and monthly mortgage payments for your dream home, and start saving!