Did you get that dreaded letter about an increase in rent? Time to move! Credit: Colourbox
With summer approaching, you may find yourself facing the question every renter in an expensive city wonders when their lease is up for renewal: Should I stay or should I go? If you want to move, what percent of your income can you get away with putting toward rent? And if you are willing to pay more than you "should" to live in your dream neighborhood, how can you cut back on other expenses?
With these questions in mind, we called up Daniel D’Ordine, a Certified Financial Planner at DDO Advisory Services. “The New York City Rent Guidelines Board suggests that you should be earning (pre-tax) about 40 times what your monthly rent is,” he says. “Some landlords have pushed it to 50 times [the monthly rent]. It comes out to about 30 percent of your income, which is actually in line with national averages.”
If you have your heart set on a particular apartment but don’t quite meet the standards, all may not be lost. “If the apartment you want is just out of reach, the landlord would ask for a guarantor to co-sign the lease, like a parent,” D’Ordine says. “Then they’d be on the hook also.”
Then it’s time to take a look on how you can cut back on other things in order to pay the rent. “At this point, at least 60 percent of your income is gone after taxes. Food and drink costs are usually in the top three [spending categories], so cut back on those last minute dinners and $20 lunches,” he says, “Then take a look at other areas and figure out what needs to be cut. Do you really need cable or a landline?”
D’Ordine also suggests changing the way you get to work. “A monthly MetroCard costs $112. You’d preserve $2,000 a year if you took a bike or walked to work,” he says.
Your job might have a dress code, but there’s no need to splurge on fancy attire, says D’Ordine. “There’s no shortage of ways to get clothing on sale,” he says, “Macy’s always has sales. Sometimes if you order six made-to-fit shits at a custom clothing store it could be cheaper. You could shop online and save, or buy clothing outside [NYC] and save 10 percent on sales tax alone.”
And never forget to save for your future. “If you put money into a retirement plan, that money doesn’t get taxed,” says D’Ordine. “People forget taxes are an expense. If you have extra money, start putting some away.”