Hundreds of millions of Americans are dealing with the very real struggle to make ends meet on a fixed or shrinking income—especially in our new economy. The popular 50/30/20 budget offers a framework, allocating 50% of income to needs, 30% to wants, and 20% to savings and debt repayment. The overall high cost of living in many big cities presents a significant hurdle. Avoiding going over budget is made a huge hurdle due to it.
Housing is one of the biggest expenses for Americans, and even more for those living in cities. An apartment with $2,000 rent might not sound like an extravagant or difficult apartment to afford. Finding strategies to reduce this cost is a key component of your long-term economic security.
One of the strongest strategies there is to reduce the total cost of housing is to split rent with someone else and have a roommate. Sharing a $2,000 apartment with a roommate can immediately save someone half their rent and $12,000 a year.
While cities like New York and Los Angeles offer abundant job opportunities and higher salaries, the exorbitantly high cost of living can negate these financial advantages. New residents typically pour their new income into housing, over a barrel in locations with growing demand, as well as transit and other necessities. This does not leave much room for saving or gaining wealth.
There’s a much better option — smaller cities like Indianapolis. They give residents all the advantages of urban life, but not at an exorbitant cost. Together, these cities offer an incredible combination of burgeoning career opportunities and affordable living. They are able to lead a high-quality lifestyle without relatively speaking the steep cost of living found in costlier metropolitan regions.
The real cost of living can be drastically different all over the United States. San Jose, California, often flies below the radar as home to the most expensive housing market in the country. The estimated salary needed to cover basic living expenses in San Jose is a shocking $147,430 annually. Data from the Massachusetts Institute of Technology (MIT) Living Wage Calculator underscores the financial challenges faced by residents of the area.
A one-person household in nearby Indianapolis would need to earn about $85,197 annually to afford their basic necessities. This striking difference serves as a reminder that we must take place into account when measuring financial well-being and upward mobility potential.
There's a limit to how much you can cut, but there is no limit to how much you can earn. - Ramit Sethi
