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Budgeting in a High Cost of Living Area, Part 2 - $100k

Sunny Choi discusses how a new associate with a salary of $100,000 can maximize their net pay in a high cost of living area.

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It’s time to downgrade our lifestyle with Part 2 of the budgeting in a HCOL area series. Now at a salary of $100,000, we have to experiment with alternative scenarios to see which one results in the highest net pay.

I used the paycheck calculator to compare the net pay outcomes for various combinations of 401(k) contributions and NYC residency.

[Disclaimer – Pay check results are approximate and based on a single filer with no dependents. The net pay was calculated without taking additional deductions, etc.]

A. Maxing Out 401(k) + Living in NYC

Your Pay Check Results
Bi-weekly Gross Pay: $3,846.15
Federal Withholding: $578.05
Social Security: $196.74
Medicare: $46.01
New York: $174.41
NY SDI: $1.20
City Tax: $107.73
401(k): $673.00
Net Pay: $2,069.01

B. Maxing Out 401(k) + Living Outside of NYC

Your Pay Check Results
Bi-weekly Gross Pay: $3,846.15
Federal Withholding: $578.05
Social Security: $196.74
Medicare: $46.01
New York: $174.41
NY SDI: $1.20
401(k): $673.00
Net Pay: $2,176.74

Sponsored

C. $8,750 401(k) Contribution + Living in NYC

Your Pay Check Results
Bi-weekly Gross Pay: $3,846.15
Federal Withholding: $658.80
Social Security: $216.76
Medicare: $50.69
New York: $195.77
NY SDI: $1.20
City Tax: $120.65
401(k): $350.00
Net Pay: $2,252.28

D. $8,750 401(k) Contribution + Living Outside of NYC

Your Pay Check Results
Bi-weekly Gross Pay: $3,846.15
Federal Withholding: $658.80
Social Security: $216.76
Medicare: $50.69
New York: $195.77
NY SDI: $1.20
401(k): $350.00
Net Pay: $2,372.93

E. No 401(k) + Living in NYC

Sponsored

Your Pay Check Results
Bi-weekly Gross Pay: $3,846.15
Federal Withholding: $753.28
Social Security: $238.46
Medicare: $55.77
New York: $219.11
NY SDI: $1.20
City Tax: $134.65
Net Pay: $2,443.68

As shown by these results, the difference between the highest possible monthly net pay of $4,887.36 (No 401(k) + Living in NYC) and $4,138.02 (Maxing Out 401(k) + Living in NYC) is $749.34. There is no right or wrong way to go about determining how much you want to contribute to retirement or whether you need or want to live in Manhattan. Personally, I’d go with option C or D, so that I can still contribute to my 401(k) while also paying down my loans.

Here I’ve divided my proposed budget into New York v. New Jersey for easy comparison as to how far your money will take you. Rent is still based on the assumption that our individual prefers to live solo in a studio or one bedroom. On the New York side, the figures in parentheses are the budgeted amounts for a scenario where you live with a roommate in Manhattan.

NEW YORK $4,504.56 NEW JERSEY $4,745.86 Comments
Rent $2,000
($1,500) 		$1,400 In NYC, the apartment would have to be a walk-up for $2,000 or less.
Utilities $100
($50) 		$50 Gas & electricity is cheaper in NJ, along with more internet company options.
Transportation $150 $250 Public transportation costs will be higher if you’re commuting to and from NJ on a daily basis for work as well as on weekends.
Cell Phone $100 $100 Costs the same everywhere!
Loans $900
($1,100) 		$1,600 With cheaper rent and no NYC tax, you have more disposable income for paying off loans.
Savings $0
($300)		 $300 Unless you have a roommate in NYC, you won’t have enough left over for savings.
Food $600 $400 Groceries are less expensive in NJ, plus you will end up eating out less at pricier restaurants.
Personal Care $100 $75 Dry cleaning will be a bit less in NJ. Also at $100k, we will need to budget less for any personal care luxuries.
Entertainment $500 $500 Again, we should budget less for entertainment and shopping.
Miscellaneous $50 $50 An equal miscellaneous cushion.
TOTAL $4,500
($4,450) 		$4,725

On a $100k salary, it’s hard to justify spending nearly 50% of your monthly income on rent and utilities in Manhattan. The wise thing would be to get a roommate or live in Brooklyn or Queens because, as you can see from the above table, you’re left with barely any money for saving or loans while living in Manhattan. However, you could squeeze extra money out of food and entertainment by living a more frugal lifestyle if you firmly favored living in Manhattan by yourself.

With living in New Jersey, you would have to sacrifice the frequency of your social life, which inadvertently results in a decrease in entertainment spending. Unfortunately, something’s got to give when you’re under the pressure of trying to save for retirement and pay off your loans with $100k. Many NYC residents probably forgo contributing to their 401(k) in order to have more disposable income. Ultimately, I believe that it’s important to contribute at least something if you’re making $100k or more, especially since the contribution means paying less in taxes and putting a little more toward retirement.

What would you do? Where would you live and how would you allocate your net pay with respect to savings, retirement and law school loans?

[In case you missed the first installment – Budgeting in a High Cost of Living Area, Part 1 – $160k.]

Sunny Choi is the 2013 Writers in Residence Coordinator for Ms. JD. She is a former participant in the Writers in Residence program, where her monthly column Legally Thrifty focused on beginners personal finance advice for law students and professionals. A graduate of the University of Michigan Law School, she currently practices commercial litigation and creditors’ rights while freelance writing and blogging in her spare time. She can be reached at [email protected].

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