Over the past few decades, rent prices has skyrocketed mainly due to the job growth in major cities. States like New York & New Jersey are the 4th and 5th most expensive housing states in the country, respectively. To make matters worse, families housing costs are at around 50% of their household income.
That number is staggering. Let’s break this down in layman’s terms. For example, if a family makes $5,000 gross pay per month, this means that at least $2,500 of that income is going straight to rent. The rule of thumb is that you shouldn’t be spending more than 30% of your income in housing costs. People that have followed this rule have seen more cushion in their discretionary income.
These numbers are not surprising in places like New York City, where the average rent price is $3,200 compared to $1,650, the national average. If we take it a bit further, NYC’s year over year rent price has increased $50 or 1.6%. Month over month, the price increase is $200 or 6.7%. It is very clear that we will not see the rent prices taking a dip, anytime soon, in highly populated cities or anywhere in the nation, for that matter.
But there are some things we can do as consumers, people that are looking to purchase property soon, or individuals that just don’t want to be behind the 8 ball.
Short term actions we can all take:
1) Save for security deposits
As a renter, security deposits can be a dent in your moving expenses. Typically, a landlord requires security deposits, first month’s rent, and sometimes last month’s rent, before giving you the keys. In the New York Tri State area, we are talking about expenses of $3,500 or more. Let’s be real, coming up with that lump sum of money, at once, can be intimidating and stressful. Saving for a security deposit is like digging your well before you are thirsty. It’s not a matter of IF you will get thirsty, it’s a matter of when. For the most part, moving is not something that comes as a surprise to us. There comes a point in our lives where we want to live in a new space. This is the time to start putting money aside for moving costs. The more you save now, the better prepared you will be to cover all those costs later.
2) Get rid of debt as fast as possible
Debt is like the evil step sister you never wanted. If this doesn’t apply to you, kudos to you! You are ahead of the game a bit. If it does, listen to me very closely. You will never achieve financial wellness & comfortably upgrade your lifestyle if debt is a reality in your life. There are two well-known methods that can be used to get rid of debt:
3) Start budgeting and monitoring your net worth
Budgeting can be a bit overwhelming and intimidating. Finding a system that works for you is key. I have personally created a budget spreadsheet that can help with starting this journey of learning how to budget. Your net worth shows you the overall pattern of your personal finances. It is important to know this number and how it fluctuates throughout the year.
4) Stay away from lifestyle inflation
In today's society, keeping up with the joneses is in style.
Don’t “one up” people at the expense of your income or personal finances.
5) Be mindful of “controllable” expenses
Controllable expenses meaning expenses that need to be paid but there is no specific bill for them. Examples are food, transportation, entertainment and so on. There are ways to cut down on these expenses to increase your discretionary income.
While being intentional with decreasing expenses, you can also increase our income by:
1)Working for a promotion
2)Adding other sources of income to your already established income
Increasing your income will also guarantee an increase in your discretionary income which will eventually result in the ability to afford the rent of your next desired home.
*Please be advised* This information should be taken solely as recommendations and suggestions based on my personal experiences and what has worked for me as I am not a certified financial advisor. Ultimately, you should make decisions as you see fit based on your specific situation.
