There are a lot of reasons that people choose to live in cities. These bustling hubs promise increased job opportunities, stimulating culture, and a sense of energy and excitement that is simply too hard for many of us to pass up.
But cities like New York, San Francisco, Seattle, and Austin (amongst others) also share another similarity: They’re expensive places to live. The most popular cities in the United States are known for having a high cost of living, which can make it difficult to enjoy all of the amazing things that these places have to offer.
The good news is that a high cost of living doesn’t mean that you have to give up your dream of life as a city slicker, as long as you are smart about how you spend your money.
Below, we take a look at some tips that you can use to keep your spending in check even if you live in an expensive city, so that you can work toward your financial goals while still enjoying everything that the city has to offer.
Saving Money in a High Cost of Living City
1. Come up with SMART money goals for yourself.
Regardless of where you live, if you want to save money, your first step should be to set a goal for yourself so that you know what it is that you are working toward. When we define our goals with words, they become real, and it becomes much easier for us to track our progress toward those goals—especially compared to a vague sentiment like “I want to save more money.”
While there are many goal-setting frameworks that you can leverage in this regard, our personal recommendation is to use the SMART goal framework. This framework states that your goals should be:
Specific: Your goals should be as specific and focused as possible. This will make it easier for you to concentrate your energy on achieving them instead of diluting your efforts amongst too many different competing goals.
Measurable: Your goal should have a clear mark of success. Ideally, this is something that you can reference throughout your journey to accomplishing your goal so that you can regularly adjust your efforts as needed.
Achievable: Your goal should be something that is challenging, but still firmly within the realm of what is possible. If you set yourself a goal that is far too ambitious, you run the risk of demotivating yourself as you fail to live up to your own expectations.
Relevant: Your goal should be directly tied to the broader goals that you are trying to achieve in your life—otherwise, what’s the point?
Time-bound: Your goal should be bound by a specific timeline. This gives you a definitive date to work towards, and makes it easier for you to break up your goal into smaller milestones.
A few examples of SMART money goals might include:
Within 6 months, I want to build an emergency fund worth $5,000 so that I will feel more secure in my ability to weather life’s uncertainties.
Within the next 12 months, I want to pay off my $3,000 credit card debt so that I will save on interest payments and free up money in my budget for other uses.
This year, I want to start saving for my future by investing $50 each week into a personal investment account.
2. Find the right budgeting strategy for you.
Once you’ve defined your money goal, you should take steps to work it directly into your monthly budget. This will put it on equal footing with the rest of your expenses, and increase the likelihood that you will take your goal seriously.
After all, if your money goal is not a part of your budget, the only way you will be able to reach it is if you find yourself with extra money in your account at the end of each month. That’s no way of accomplishing goals as serious as saving for your future. Your best bet is to factor it into your budget so you will be empowered to pay yourself first each and every month.
Don’t have a budget? We highly encourage you to create one. Doing so will empower you to:
Track your spending, so you know exactly where your money is going each month
Spot trends and identify areas where you can cut back in order to save
Prevent yourself from mindlessly spending money that you need for other purposes, such as your goals
The good news is that there are many different budgeting strategies and frameworks that you can leverage on your financial journey. You can learn about some of the most effective budgeting strategies here.
After you’ve selected a budgeting framework that aligns with your goals, it will be important to stick to it. In this regard, here are some tips you can use to increase your chances of sticking to your budget over the long haul:
Sleep on large purchases: If you’re considering making a purchase that is a want but not a need, sleeping on it for a day or two can help you evaluate whether or not you truly want it. If you still get excited thinking about the purchase a few days later, then go ahead and splurge. If you don’t, then move on. This one trick can translate into hundreds or thousands of dollars saved each year, depending on your spending habits.
Build an adequate emergency fund: Few things can blow a hole in your budget quite like an unexpected expense. That’s why it’s so important to have a well-stocked emergency fund that can cover the surprises that life throws at all of us from time to time. Most experts recommend that you aim for at least three to six months’ worth of expenses.
Consider a “no-spend week”: A “no-spend week” is exactly what it sounds like: A week where you do not spend any money, other than what is absolutely necessary. They can be an excellent way of saving money if you find yourself getting close to breaking your budget. Additionally, they can be incredibly helpful in allowing you to spot patterns in your spending behavior which you can then take steps to change.
Think critically about recurring expenses: If you have recurring expenses in your budget, such as a subscription to a streaming service, it can feel deceptively inexpensive. After all, what’s $10? But when multiplied by 12 months, these insignificant expenses from your Netflix and Spotify subscriptions can grow substantially. Any time you are considering adding a recurring expense to your budget, consider the total cost—not just the monthly cost—so you can evaluate the full effect it will have on your finances.
Automate as much as possible: Automation is a powerful tool that can make life easier in many ways, including our finances. If you need help sticking to your budget, consider automating your recurring expenses. This will ensure that you never miss a payment or accidentally spend money that should have been earmarked for other purposes. You can also automate your savings efforts by setting up a recurring transfer into your savings account each time you get paid.
3. Take a long, hard look at your housing expenses.
For most of us, housing costs take the biggest bite out of our budgets each month. The same is true whether you own a home or rent an apartment (though in a city with a high cost of living, the latter is much more likely).
As a point of reference, here is the average cost of rent in 2022 for a one-bedroom apartment in ten of the most expensive cities in the US:
New York: $5,014 per month | Boston: $3,922 per month | San Francisco: $3,554 per month | Miami: $3,000 per month | Washington, D.C.: $2,960 per month | Los Angeles: $2,807 per month | Downtown Seattle: $2,365 per month | Downtown Denver: $2,100 per month | Chicago: $2,000 per month | Austin: $1,523 per month
There are steps that you can take to cut your housing costs in order to immediately free up some money in your budget. You might, for example, get a roommate, or move in with your significant other. Likewise, you might move to a neighborhood within the city that offers lower rents or less expensive real estate.
Just using New York City neighborhoods as an example, consider that the average rent payment in downtown Manhattan is approximately $5,565 per month versus $3,081 per month in downtown Brooklyn—or roughly $2,484 more expensive.
If you currently live in downtown Manhattan and were able to move to downtown Brooklyn, that would free up significant money in your budget to use in other ways. If you were able to invest all of those savings into a well-diversified portfolio earning an average annual return of just 6%, then after 40 years you’d have nearly $5 million. Even if you were only able to invest half of that, you’d still end up with a portfolio worth almost $2.5 million.
4. Reconsider whether or not you need your own vehicle.
Between the cost of gas, maintenance, car insurance, and any monthly payments you may have on an auto loan, owning a vehicle is expensive.
And it can be even more expensive in a big city. Living in a city can boost your insurance rates—by an estimated 39% compared to living in a more rural area—up to an average of $234 per month. Additionally, if parking is particularly limited where you live, you may need to fork out cash for a guaranteed spot. In New York City, the average monthly parking rate comes in at $570 per month.
Of course, one of the benefits of living in a large city is the fact that they tend to be well served by public transportation services, in the form of bus lines, subways, etc. With this in mind, you should consider whether or not you truly need a vehicle. If not, selling your car could offer a nice little transfusion of cash, while also instantly lowering your monthly bills and freeing up hundreds or thousands of dollars that you can put to work in other ways.
5. Enjoy the city! (within reason)
If you’re living in a major city, then you want to be able to enjoy everything that the city has to offer. Whether you’re interested in sporting events, concerts, museums, shopping, restaurants, or anything else—we’re not here to tell you that you need to deprive yourself of the things that make you happy in order to save money.
That being said, every so often it can be helpful to go back to your budget and look at how you’re spending your money. Ask yourself: Are these purchases actually bringing more joy and satisfaction into your life? If they are, and they’re not breaking your budget, then great! And if they’re not, would you consider cutting back on some of the purchases to free up money in your budget for other goals?
By going through this exercise every so often, you give yourself the opportunity to check in with your spending habits and make sure that you’re actually using your money in a way that makes you happy.
Putting Your Savings to Work
Once you’ve freed up money in your budget, it’s important to actually put it to work achieving whatever financial goals you outlined in Step 1 above.
Allio is here to help you do just that. When you’re ready to begin putting your savings to work growing for the future, we’ve got the options you need to achieve your goals. Round-ups help you put money aside as you spend; recurring investments help you build investing right into your budget; and one-time investments help you put surprise windfalls to work quickly and hassle-free.