Financial Planning for Inhabitants of the City that Never Sleeps

20130731-103411.jpg (Photo Credit: Brian Friedman, b-freed photography)

A version of this post appears on GoGirl Finance.

Us New Yorkers like to believe that we’re a different breed of people, don’t we? We live in the most amazing city in the world; a city that never sleeps. We’re special for our love of the perpetual motion. We need the breakneck pace and the infinite choices. But when it comes to financial planning – budgeting, savings, retirement, asset protection–even though our lifestyles may be very different, our needs are not dissimilar to those of Americans living in the suburbs and more rural areas.

Granted, living in an expensive city does make some aspects of personal finance more complicated. We all–city slickers and suburb dwellers alike–want to build wealth and have the opportunity to retire when we choose, but financially savvy city living requires more awareness and laser focus.

A Wealth of Distractions

There are plenty of excuses not to save money when you live in a city like New York. The hustle and bustle makes living “in the now” too easy: a spontaneous dinner at a new restaurant you’ve been dying to try; popping into a boutique you just happen to pass on your way to work; impromptu post-work drinks with your friends along with all the shows, movies, concerts, lectures, clubs, and other activities in competition for your discretionary dollars. I have to stop here and ask you if you know how much you spend on leisure activities versus fixed costs like rent and bills. (If you don’t, see my tips at the end.)

Think Like a Suburbanite

City dwellers are more likely to be single or part of childless couples, making it easy to put off saving for retirement, getting life insurance, and estate planning for when they move to the suburbs, settle, and start a family. However, the extra decade or two of compound interest on any saving you do in your 20’s and 30’s can make a big difference. And, the younger and healthier you are, the cheaper your life insurance premiums will be. Starting early, even if small, can mean doubling your money over your lifetime!

Even if you don’t plan on getting married or having a family, it’s still extremely important to plan for retirement–as a single person you will be depending exclusively on your savings. While it may seem morbid, it’s worth thinking about how you would fund long-term care should you need it later in life. This advice rings especially true for single people as the question of who will care for you is more complicated when you don’t have a partner or children. Fortunately, there are life insurance plans with “living benefits” that can help, so take some time to investigate.

Get Real with your Real Estate

Everyone knows that living in a city equates to a higher cost of living, even if offset by higher income and more abundant employment opportunities. Indeed, the average rent in New York City is now $3,000 per month. But what you also need to consider is that your retirement income—i.e. what you draw from your savings–needs to keep pace with the increasing cost of living in a city when you’re no longer working. So, if you plan to stay in New York, Chicago, or L.A. for your “Golden Years,” you will need to save more than the average person over your working lifetime to be able to afford it. (Conversely, if you spend your entire career in a big city and then retire to a less expensive part of the country, you’ll likely increase the value of the money that you save.)

Cash-flow Positive

If you’re concerned about your current earnings, it’s worth remembering that it’s not so much what you earn, but how much you keep. For example, I have a client who makes $35,000 a year but has $100,000 saved for retirement. Another client of the same age makes $80,000 a year and has no savings at all. Guess who’s in a better financial position?

Top Tips for City Slickers

If you’re not sure whether or not you’re succeeding at financially savvy city living, try out my top tips below:

1. Track your weekly spending–planned versus unplanned. Is there a specific splurge that you could rein in to increase your savings (e.g. taxi cabs, coffees, clothes, and dinners out)? You can use a free budgeting app like Moven (Moven is offering access to their beta to anyone who joins the GoGirl Finance circle!), Mint.com, or Pocket Finance to make this less onerous. Do a little Googling to find an app that works best for your lifestyle.

2. Make sure you understand your ratio of fixed expenses to discretionary income. What are you spending on rent as a proportion of your overall net income? Usually, if this is more than 30% of your paycheck, perhaps consider whether there are any other accommodation options so that you can reduce this expenditure and save the balance.

3. Make an appointment with a financial professional so that they can help you make most of your money. This needn’t be costly or overly time-consuming–it’s not only for the 1%! As a personal finance coach, I provide free counseling to individuals and families, appointments only take an hour or two, and we have offices across the U.S. and Canada. Help is out there if you want it!

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