Most budgeting advice boils down to one thing: You spend too much. But is it really true? Do you indulge in too many luxuries—a pair of strappy heels here, a DVD box set there? Does that three-figure savings account point to a shameful lack of discipline? Or is raising kids in NYC such a demanding business that there aren’t enough hours in the day or dollars in the bank to break even? On these pages, we disclose the average spending, after taxes, of both American and New York City households.* Then we show you how much of your take-home pay financial experts recommend you lay out for things like savings and transportation—just for a little comic relief. Finally, we calculate a real-world budget for New York City families with two kids in day care. The upshot: Whoever said raising kids requires a 110% commitment wasn’t kidding.
*Percentages are drawn from the U.S. Bureau of Labor Statistics’ (BLS) Consumer Expenditure Survey, except those for child care, which come from the National Association of Child Care Resource & Referral Agencies (NACCRRA).
It doesn’t take a financial genius to notice that the column above totals more than 100%. The American savings rate now hovers around 0%; if you’ve got credit card debt, you’re looking at a negative balance. Families with young children have it especially tough, typically spending more on day care for one infant than on the household’s food. According to the NACCRRA, families with two children can easily spend more on day care than on their rent or mortgage. And because the price of child care is rising twice as fast as inflation, those figures aren’t going to improve anytime soon. The good news is that you don’t have to feel bad for not accepting that job offer out-of-state. Things are rough all over.
At first glance, New Yorkers’ spending habits may not appear all that different from the national norm. In fact, we do allocate our dollars differently. Some of the stats confirm the suspicions we all have: New Yorkers spend “significantly more” on housing and clothes, according to the BLS, and significantly less on transportation. Other numbers had us thinking, WTF?: We spend less on entertainment, alcohol and cigarettes? But here’s a revealing piece of trivia for you: New Yorkers in 1901 spent and saved about the same percentages of their take-home pay as we do now. So although the nature of our indulgences may have changed—from, say, whiskey and gambling to the aforementioned shoes and DVDs—we’re not any more irresponsible than our great-great-grandparents were.
Financial advisers suggest allocating your gross pay like so, assuming a tax rate of 25%: housing and debt 30%, transportation 2%, savings 15%, and everything else 28%. We converted these figures into percentages of take-home pay so you can compare them with the previous two charts. This breakdown presents several problems. First, lumping so many essentials together isn’t helpful to those of us looking for ways to cut back. Second, the transportation and savings percentages are way off from what people actually spend and put aside. Third, these guys must not have gotten the memo about American family values, because the high cost of child care is not accounted for at all. Good luck sticking to that 100% total.
Let’s start with the fixed costs of housing/debt and child care. Housing is allocated 40%, which for families with a combined take-home of $100K translates to $40K/year or, $3,300/month. (One big assumption here: You don’t have masses of credit card debt or huge student loans to pay off.) The child care figure will cover two infants full-time in a reputable center. The rest of the categories are based on actual local spending. Because we want you to have a life, we threw in a little extra for restaurants and entertainment. We cut back on transportation and the vice kitty. Savings and charity get zippo—and you’re still in the hole for $10K a year. It isn’t ideal, but it is reality.
To keep debt under control, try borrowing from family and putting extra income (raise, bonus, tax refund) toward your credit cards and emergency fund. One day, you’ll get that big promotion, or the kids will start public school, or the government will implement universal health care (ha!). Then you’ll be able to afford things like nice vacations, charitable donations, even retirement (double ha!). Meanwhile, try to relax and enjoy these years, despite the temporary financial insanity.