Are you familiar with the 50/20/30 rule? It's posited as the ideal way to budget, and it goes like this: 50 percent of your take-home pay is supposed to go toward necessary expenses and essentials (think rent, utilities, food, transportation, and any other fixed payments that you have to pay every month), 20 percent is supposed to go to savings, and 30 percent is for personal expenses (like going out, Netflix, gym memberships, and any sort of flexible lifestyle expenses that you don't necessarily need).
New York is an expensive city to live in—apartments rarely come cheap, and, really neither does anything else. So we wondered, is it possible to achieve the 50/20/30 budget distribution in a city with such a high cost of living?
The truth about the 50/20/30 rule is that it's different for everyone no matter where you live, because everyone has different salaries, life plans (and thus, financial goals), debt situations, and tastes. To see what it's really like for NYC residents, we asked people to anonymously share their jobs, income, what their actual budget distribution ratios are, and to talk more about their relationship with money.
When we mention somebody's actual ratio, the order of percentages goes like this: Essential Expenses/Savings/"Fun" Money
"We're Starting to Plan a Move Out of NY"
Profession: Full-time assistant/office manager and literary agent
Annual Salary: $40,000 base, plus some commission on my independent agenting work
Actual Ratio: 60/15/25 (with more going into savings when I receive commission payments)
"My rent is around 30 percent of my monthly take home which is what—at some point—I was told is standard for living in NY. But I make this happen by living in a very small three bedroom, one bath apartment with my fiance and two roommates. If my partner and I were to rent even the smallest and shittiest of one bedrooms, my rent ratio would easily be between 40 and 50 percent of my monthly take home. We lived alone for a couple of years and realized we weren't able to build any savings, which put us at a real disadvantage to plan our future, and so we moved back in with roommates. Between loan payments and saving for a wedding, there isn't much room to cut into our savings potential for the sake of NY's over priced rental market. We're actually starting to plan a move out of NY—living here just doesn't seem sustainable any longer."
"I'm Floored My Ratio is Pretty Accurate"
Profession: Therapist/social worker
Annual salary: $45,000
Your actual ratio: 49/14/37
"I am FLOORED that my ratio is pretty accurate. I'm lucky enough to live somewhere where my rent is reasonable (for NYC standards). However, I definitely didn't add enough to my food budget. Those Seamless orders/weekend brunches sneak up on your bank account. I definitely need to save more, but I am very young and on salary for the first time. I'm just enjoying not being broke. Additionally, I am saving for my first big vacation this summer rather than general savings, so up until December my savings percentage was zero. My personal expenses fluctuate the most out of all of these—and this is going off of a month like March where I get two full paychecks. Shorter months and bi-weekly pay periods definitely skew the ratio. Overall, I think this is a great way to look at one's expenses and I am incredibly surprised my ratio generally lines up!"
"It is a Luxurious and Privileged Existence, to Choose to Struggle"
Profession: Artistic director/entrepreneur
Annual Salary: $80,000
Actual Ratio: 74/0/26
"My rent alone is 57 percent of my monthly take home (after taxes), which means that my ratio hardly matches what is assumed to be standard. Admittedly it is my choice to live alone and in a part of town I like, however that does not seem like an unreasonable want for a woman who owns her own business and is in her 30s. I essentially kissed savings goodbye and am planning on just working very hard for the rest of my life OR endearing myself to the children of my close friends so that, in my old age, they will take care of me, as I do not anticipate marrying or having children of my own. Sustainability is something I think about often. As I settle into who I truly am, the idea of living the life that I am suited for seems more and more far fetched, which is a harsh reality, as the work I do is actually New York specific, so I can't exactly go somewhere else to make magic happen for me. I just get to keep battling to figure out how to find the balance. Again, though, I am also constantly reminded that I could choose to live a different life where money is easier to come by and living expenses aren't so outrageous. It is a luxurious and privileged existence, to choose to struggle."
"Not Having Anything Saved Up at the Moment is Super Scary for Me"
Profession: Assistant editor
Annual Salary: $49,000
Actual Ratio: 60/25/15 (with 25 percent going to credit cards instead of savings)
"My rent actually isn't that bad for New York, but my ratio is higher in that area because of my student loans. I got laid off right before summer last year and didn't qualify for unemployment, so I basically had to live off my savings and my credit cards (including paying my rent) until I found full-time work again, which took several months. My usual ratio, before this, was more like 62/18/20, with that 18 percent actually going to my savings, but for now, until all that debt is paid off, I've got all that I would typically put in my savings and then some—around 25 percent—going towards my credit card bills. I also usually pay a little more than the minimum on my student loans, but have been sticking to the minimum payment while I figure my debt out.
"Sticking to the financial plan I've made for myself—and with a little help from my tax return—I should have my credit cards paid off by August, which I'm really looking forward to. Not having anything saved up at the moment is super scary for me, but I was paying so much in interest every month, I wanted to prioritize my debt and put as much as I could towards it. I still go out to eat with friends and go to things like concerts because I know that if I didn't, I'd be stuck in my apartment and totally miserable, but I'm definitely more frugal than I normally already would be."
"I Have Lots of Frugal Habits"
Profession: Digital marketing & social media management
Annual Salary: $76,000
Actual Ratio: 40/30/30
"I've kept the same living situation since I was making $35,000 as a PR coordinator. Yes, I have three roommates, but that combined with not having student loans has let me save a lot of money and have a lot of fun. I only recently got up to what I feel like is a fair salary, so I have lots of frugal habits—eating cheaply during the week, avoiding cabs, dyeing my own hair and doing my own nails (I'm also responding from a very unsexy Chromebook that I got for under $300). The splurges that have made the best sense to me are forking over $20 a month for a house cleaner (again, three roommates) and $120 a month for ClassPass (can't buy $20 cocktails when I have cycling class after work!). I'm trying not to let too much 'lifestyle creep' happen to me because I don't want to live in NYC forever and would like to leave with a nice nest egg, but I'm starting to get obsessed with houseplants and fancy Staub shit, so that might be a problem."
"I Don't Know How I've Come Up With a Savings Account, But Wow, it Exists"
Profession: Social media editor
Annual Salary: $67,000
Actual Ratio: 65/10/25
"Full disclosure: I just recently got a raise, so I'm actually pleasantly surprised at this distribution! I thought necessities would be like 90 percent. My necessities are rent on my studio apartment in Brooklyn, a monthly MetroCard, student loan and credit card debt payments, phone/internet/electric bills, and Trader Joe's. So that's what I spend money on first, but then my second priority category is actually "Personal" — things like my gym membership (I go to Equinox, so yes, please drag me), clothes/grooming products, a monthly haircut, a Hulu account, and my daily latte-and-cruller at Daily Provisions near my office. Whatever's left goes to my savings. But I use this app called Qapital which rounds up all of my credit card spending to the nearest whole number and puts that difference into specific pots of money I've labelled (e.g., "tax cushion," "in case I need to move," "San Juan 2017," etc.). So I don't know how I've come up with a savings account, but wow, it exists.
"I don't think I can blame my New York rent as the reason why I'm not closer to 50/20/30 (my studio is $1300), but I think it's because of my loans and credit card debt from college and from when I first moved to the city. I'm not currently accruing interest on my credit cards which is great, but I just have a lot of bills to pay. Between internet and my phone bill and loans and taxes in New York, I don't get to hold much of my money before it's gone.
"As for the 50/20/30 rule, it feels kind of antiquated to separate 'Necessities' and 'Personal.' I guess if you really insisted on it, a better name for 'Personal' would be 'Whipped Cream,' the decoratives of your life. But, at the risk of sounding like a total tool, I'm more about living a holistic life, that the things you spend on should make you feel good and stable about the life you're living. I definitely am someone who grew up with a taste beyond my own means, but now that I'm approaching something that feels like financial solvency, it's nice to be okay with taking a cab home at 3 am without feeling like I'm being terribly indulgent. I don't plan on going back to school or having children or anything that might require a huge nest egg, so I'm okay with working towards a savings slowly but surely. It'll take a while, but hey, one worthless copper penny at a time."
"I Have a Few Things Working Against My Favor"
Annual Salary: $65,000 (although my office put $5k towards my tuition pretax, so my gross pay is calculated off 60,000)
Actual Ratio: 60/20/15 (although to be honest, that 20 percent goes towards tuition payments so in reality it's more like 80/0/15)
"I don't really line up with the suggested ratio, but I currently have a few things working against my favor. I'm married, but my husband is out of work, so while our apartment isn't that expensive, it isn't that cheap on a single income. Also I'm in graduate school, which I'm paying for without loans but that means 2-3 times a year my savings completely vanish as I pay for my semester. Also my personal expenses are low just because work and school keep me too busy to have any kind of life. Ideally all of that will change in the near (or relatively near) future, and when that happens I hope to be able to increase my savings percentage and my fun money."
"That's Totally Not the Norm in NYC"
Profession: Assistant fashion designer
Annual Salary: $40,000
Actual Ratio: 49/31/20 (with 31% going to credit cards instead of savings)
"First off, I get paid every two weeks, so I budget based off of two paychecks, even though it's not technically a full month (in one year I will have 26 paychecks, so two are "extra" outside of this type of budget). Monthly bills include rent, utilities (electric, internet), cell phone, renter's insurance, and Adobe CC. Health insurance and the monthly MetroCard are taken out of my paycheck before taxes, so I don't have to budget those in. I thankfully don't have any student loans, but right now I'm aggressively paying off the two credit cards I have, and in a month or so they will be paid off, so my ratios might stay the same, but the credit card payment will go fully toward saving (I was saving a small amount before, but decided to put it on hold in order to pay off debt ASAP). Also in regard to savings, I'm about a month and a half ahead with money set aside for all monthly bills, so it's technically savings, although I don't consider it that (another reason why I'm comfortable not actively saving at the moment).
"In making this budget/spending plan, I realized I spend a very different amount on food each month, and it usually gets muddled between eating out and groceries, so I keep it separate from the exact bills that need to be paid every month, and it's flexible because I can decide if I want to spend extra money on eating out or buying some new makeup or something. Overall, I think I'm only somewhat close to this ideal ratio because I have pretty cheap NYC rent ($820) and no student loans, which is kind of a bummer, because that's totally not the norm in NYC."