“Cost of Living” is a Relative Term

I read an interesting article today that claims one must earn at least $100,000 annually just to get by living in a major international city such as New York, London or Tokyo.  To live comfortably, the article states, one must earn $200,000 annually.

And I thought California was expensive.

The author points to an interesting dichotomy that illustrates the vast differences in living standard that occupation and location can entail.  While, on one hand, earning $100K annually would place one within the top 10% to 15% of incomes in the United States, on the other hand, incomes of that caliber are now standard in New York City for a first year finance industry associate, doctor or lawyer.  And about that seemingly elusive $200K income?  Pretty much the norm for a 30- to 32-year old second year associate in one of the above-mentioned professions.

Don’t choke on your beverage, please.  Breathe.

I am not sure how to place this information in perspective.  I have a law degree and have worked in management for decades but don’t earn a fraction of those six-figure incomes.  But at least I have a job.  Of course, I’m a do-gooder who works in the public sector and I reside in Sacramento, not New York.  The cost of living here, which seems sky high to me, is nowhere near what one must bear to live, say, two hours down the road in San Francisco.

Growing up in New York, I never thought about money.  I know I didn’t have adequate appreciation for the fact that my parents each worked demanding jobs in the public schools and, together, probably just earned enough to get by.  This was true even though the price of their brand new 1967 station wagon was $2,700 and the price of a new home on a ¾ acre lot was about ten times that.  Most people couldn’t swing that kind of money and, like my aunt and uncle, continued for decades to live in tiny, roach-infested, rent-controlled apartments from which you could walk to the subway.  When my parents were just about ready to finish their 30-year suburban mortgage, they sold their house and moved to California.  By that time, the house was already starting to fall apart.  But that was more than 20 years ago, and the couple to whom my parents sold their house still own it, according to Zillow.  I’ll drive by it when we’re in New York next month and let you know what it looks like these days.

When I graduated from college in 1980, I applied for a job in New York City that came with a salary of $5,000 annually.  My father told me not to bother with it, as it would cost me that much just to commute from our suburban home, where I was living for free, into Manhattan every day.  I would essentially be working for nothing, donating my labor.  Instead, I took a job at a local print shop, pulling night shift for more than twice what I would have earned in the city.  After a year, I moved over to a union shop that paid more than eight dollars an hour.  I thought I was rich.

How times have changed.

To counterbalance the inflated salaries earned by professionals in New York (and to counteract the effects of my agape visage that was letting in flies), I read another article about how some New Yorkers get by on an income of zero.  You read that right, zero.  And I’m not talking about homeless individuals, either.

There will always be resourceful people who manage to “squat” in vacant apartments.  I imagine that the temptation to go this route must be high among low- or no-income New Yorkers who are willing to rough it a little (or a lot).  I think of the Manhattan home that author Jeannette Walls’ mother made for herself (as described in Walls’ best selling memoir The Glass Castle).  She was a freegan, also known as a dumpster diver, as was Marie, the zero-income New Yorker described in the article linked to above.  Marie was not a squatter, but instead had a great living situation in a three-story home.  She took care of the place and, in return, was allowed to live there for free.  So, technically, The Guardian is incorrect in characterizing Marie as having had no income.  Although she did not receive a paycheck, she obtained what the IRS calls “in kind income.”  Then again, I doubt that Marie, who was in this country illegally, ever paid a dime in federal, state or city taxes.

Most industrialized nations do not have a homelessness problem on the scale that the United States does.  This is partially due to the fact that, in most countries, you don’t need a six-figure income to get by (nor does one need that kind of income in many areas of the United States).  Another factor is that the deeply-ingrained American consumerist culture doesn’t exist in many parts of the world, so the concept of “getting by” has an altogether different meaning there than it does here.  Yet another factor is that most developed nations recognize that having a roof over one’s head is a right, not a privilege.

Unlike in Sacramento, municipal law in New York City does recognize a right to housing, even if that means sending an entire family to squeeze into a tiny motel room out in the hinterlands by JFK Airport.  Of course, New York still has a large homeless population, among which are many who are mentally ill and/or are alcoholics or addicts who are unwilling or unable to follow the rules by which one must abide to remain in a shelter or other city housing arrangement.

My father longs for the old days, when no one received a handout and everyone was entitled to exactly what their earnings would purchase and not a penny’s worth more.  He told me that he likes the way that the homeless were summarily driven in a police car to the city limit and informed that if they ever returned, they would receive free housing in a jail cell.  My thought was:  This explains “hobos.”  You had to move from place to place if no place would allow you to stay.

I’m glad we live in a (somewhat) more compassionate society today.  Here in Sacramento, homelessness seems to have blown up as a major issue in the news lately.  This is at least partially attributable to the publicity surrounding the destruction of homeless encampments by law enforcement both here and in the Central Valley (Sacramento has an “anti-camping” ordinance).  It also helped that some of those displaced by the police demonstrated their ire by camping out at city hall.  Many were arrested but, upon release, immediately returned to city hall with their sleeping bags or tents.  Out came the TV camera crews and, all of a sudden, homelessness is in the news again.  While homelessness is right under our noses every day, we choose to ignore it in “emperor’s new clothes” fashion.  So it is refreshing that homelessness has lately become a popular topic of discussion in our local area.

I often make self-deprecating remarks about the fact that I live in a two-room mouse hole and pay handsomely for the privilege.  But at least I don’t have to own a sleeping bag or a shopping cart and I don’t have to lie down on the sidewalk in the rain and the cold, as many do downtown each evening.

And I don’t have to get my dinner from a dumpster.


4 thoughts on ““Cost of Living” is a Relative Term

  1. Financial Samurai (FS) is a good personal finances blog, but you should be aware of the blogger’s background and his approach to finances. FS is a former investment banker who worked his way up to managing director (essentially partner, but many of the investment banks are now publicly traded companies) by his early 30’s and retired from investment banking at age 35. This is not so unusual in that most wannabe I-bankers wash out at the analyst/associate level after 2 to 4 years, and many others who go farther eventually get exhausted by the brutal hours and frequent travel. However, many of them leave investment banking for other types of work. Unlike most of his colleagues, he decided to save a something like half of his post-tax income every year and invest a large fraction of the savings in income-producing real estate/dividend stocks/bonds. The web site and work with product vendors was also intended to provide him with some extra income, and he has toyed with going back to work either full or part time (and may have done so within the past year – I haven’t read the site in a while) on his terms. The key takeaway is that he thinks that everyone who can do so should be saving and investing a big chunk of income. Spending should come out of what’s left over. If one makes 100k in an expensive city and saves half of the after-tax income, what’s left is not enough for a middle class lifestyle at the expensive city’s prices.

    • Somehow, I don’t think this is what Bernie Sanders means by “the disappearing middle class.” However, it is a propos! It is fascinating that, in a major city, even $100K is insufficient to propel one into the middle class. It makes one wonder what hope there is for the rest of us.

  2. incomes of that caliber are now standard in New York City for a first year finance industry associate, doctor or lawyer.

    It’s a bit more complicated than you’ve written. A first-year associate in a large New York City law firm (i.e. “biglaw) will make over $100k straight out of law school around age 25 assuming he went straight through from kindergarten to J.D. without any breaks. However, most law school graduates don’t score associate positions in biglaw and have to settle for positions in small law firms or government that pay much less (40-60k). Many can’t even get those jobs and are relegated to short-term document review assignments in dingy basements or never find legal employment at all. On top of that, most law school grads have large educational loans to pay off that eat into their salaries. And even worse, most don’t have the option to stay in biglaw for their whole careers because only a small percentage of associates will ever make partner. The lucky ones who don’t make partner will either work for large corporations in-house, stay in the large firms as employed “of counsel” attorneys, or go to smaller firms. The less lucky associate washouts won’t be able to find another job practicing law.

    In medicine, the “first year” doc making over $100k is in his first year out of residency (or post-residency fellowship) training that pays more like $40-60k per year Medical school lasts 4 years after college, and residencies vary in length from 3 to 7 years by specialty. Further depending on sub-specialty chosen, fellowships can last anywhere 1 to 4 years after residency. To give an example, a newly minted cardiologist who went from kindergarten through cardiology fellowship without any breaks would be around 32 years old (4 years of medical school + 3 years of internal medicine residency + 3 years of cardiology fellowship). Because most physicians in training have large educational loans from college and medical school, few are able to save much money during residency and fellowship training. Saving for retirement (and often, having a family, saving for kids’ college, etc.) is delayed into the 30’s for most physicians.

    • Love your response, Janon. Truly, you are singing my song. Been there, done that, wearing the T-shirt. I graduated from law school more than 25 years ago and I am still paying for it. And I had help from my parents! “Many never find legal employment at all.” Preach it, sister! Most people out there don’t understand this sad fact. Most of us, particularly those with mediocre grades from mediocre law schools, end up doing whatever we can to eat, pay the rent, keep the lights on and pay those dadgum student loan payments. They don’t tell you that it’s going to be a lifelong ball and chain. If law school applicants knew the truth, I bet many of them would think twice.

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