Monday, January 14, 2008

New York Stories #7: Escape Brooklyn

Another New York Story for ya... this time it's from another blogger whose posts and comments I always enjoy, Escape Brooklyn. And here's something that is a bit different from most of the New York Stories I've posted so far: as you might guess from the title of her blog, E.B. isn't feeling all that positive about NYC any more. She's kind of over it! She's thinking about leaving the city and heading for someplace where life might be cheaper and less complicated. Here's her story:

A huge thanks to Madame X for inviting me to participate in her New York Stories series, which I’ve loved reading so far. Since I already share so many financial details on my blog, Escape Brooklyn, I thought I’d highlight four PF watershed moments that I’ve had since moving to New York in 2002.

First, I moved here from Chicago after finishing my MFA (Master of Fine Arts degree; I focused on film/video/new media). Although it was always one of my goals to get an advanced degree, I had no idea what I was really getting into and ended up with $49k in student loans. Now, I wasn’t totally naïve going in; based on the financial aid package the school sent me before I enrolled, I expected to take out $24k in loans. However, tuition increased $5k in my second year, the T.A. jobs weren’t as readily available as the school implied, and in my department T.A.’s earned a paltry $8/hour instead of the $13-$21 hourly wage advertised in the school’s literature. So what I learned is that schools are corporations that need to make money, and that they make it incredibly easy for students to just keep adding on the debt.

And while I don’t necessarily “regret” getting a Masters, I do wish I had done a more accurate cost/benefit analysis before committing to a three-year terminal degree (and moving back across the country from the Bay Area, where I was living at the time, for it). Now instead of having the artistic freedom to pursue film work, I work a day job in a non-related field and pay $400/month towards my loans. The minimum payment is $290, but I’d like to have them paid off before I’m 40 so I make extra payments. Altogether, it will have taken me about 13 years to pay off my advanced degree. Fortunately I consolidated at the record low interest rate of 3.5%.

On the positive side, having the student loan debt forced me to get really serious and organized about managing my money. Which brings me to my second significant moment. A few months after moving to NYC, I had found my first job with a nonprofit. It was a one-year “fellowship” position where I earned a base salary of $20k/year, plus they paid $290/month towards my student loan and there was a potential performance-based bonus of $5k upon completion of the fellowship. During that year, I happened to hear about a financial planning workshop for women, and even though I was struggling, I spent the fifteen bucks to attend.

Funnily enough, the workshop was billed as a “Beauty and Money Make-over” event that took place at a high-end spa. As participants, we received a goody bag with a bunch of fancy face creams, and also a one-time 10% discount on the seriously expensive products. Maybe it’s just me, but looking back I really enjoy the irony of an event that was ostensibly about helping women with money management, yet still felt required to tempt us with severely overpriced anti-aging products to get us in the door!

The workshop, however, was fantastic. A representative from one of the big investment firms gave a PowerPoint presentation based on David Bach’s “Smart Women Finish Rich” book, and at the time it was as if a light bulb went on over my head. Finally, I was getting some direction about this money stuff!

As an added bonus, the workshop presenter offered all of the participants a free, one-hour “financial advising” session. She was obviously trying to drum up her clientele, but I was thrilled to have the opportunity to talk with an expert. (For free!) I remember bringing her my monthly budget (by this point I was an expert at maximizing my limited income) and also a copy of my investments to date. I was 27 years old and pretty proud that I had accumulated about $8k or so in retirement savings despite taking three years off to get my MFA. Considering my only direction so far had been an article from the Chicago Tribune for new college grads that my mom gave me in ‘97 – it promised that college grads could accumulate $1 million dollars for retirement if they just saved $100/month – I felt I was doing okay.

Well, the financial consultant told me in no uncertain terms that I was NOT doing okay. But I’m pretty responsive to tough love, so ultimately her advice was a tremendous boon. She told me I was way underpaid and that considering I had a Masters, I should be earning at least $60k/year. (Which sounded like a fortune at the time!) Although I was doing okay with budgeting the money I had, she said I simply needed to earn more if I was ever going to get ahead. She suggested I focus on buying a starter co-op instead of a multi-family property, and she told me that I was “way behind” on my retirement savings. She said she advises clients to save $30k by age 30. Her feedback was a huge wake-up call.

I immediately focused on climbing the career ladder and now, nearly five years and four jobs later, I earn in the low sixties. I also started putting as much as I could towards retirement, and ended up exceeding her advice; I had $35k saved when I turned 30, including my entire $5k bonus from that initial fellowship. As my income increased (I went from earning $20k to $35k to $55k to my current salary), I simply continued to live as if I was still earning $20k/year so I could save my salary increases. For the past three years, I’ve saved the maximum in my Roth IRA and 403(b) investments, and it’s exciting to see the money accumulate.

The third important moment for me in NYC was when my husband – then boyfriend – and I bought our apartment. Although neither of us was making a lot of money at the time, we saved as much as we could in a separate account and in 2004 were able to buy a one-bedroom co-op. We paid $125k for the apartment in an “up and coming” area of Brooklyn, and with the ever-increasing maintenance cost, our monthly housing costs are currently just under $1,200. We were determined to keep our overhead low, and in hindsight it’s good that we weren’t making more money when we bought our place because our mortgage broker wouldn’t allow us to mortgage more than about $180k, tops (my husband and I were making about $60k/year combined at the time). So we were forced to find a great deal.

Now, the process of buying an apartment in NYC was extremely difficult and frustrating, and if we were trying to buy now we wouldn't be able to afford anything because prices have gotten so insane. And although our apartment has increased in value significantly, ultimately we can’t afford to upgrade. What was supposed to be a stepping-stone to a larger apartment (like a two-bedroom, or something with a balcony) or a multi-family home (where we would live in one unit and rent out the others), has instead become the only thing we can comfortably afford in New York City. So instead we bought an investment house in Philadelphia in 2006, but that’s another story…

We continue to be stubborn about keeping our expenses to one income, since my husband has been laid off from nonprofit jobs a couple of times and I’ve seen budgets slashed and nonprofit colleagues let go, too. The idea is that all of our fixed costs can be paid by one of us, so if anything happens to the other person we won’t be totally screwed. This strategy saved us last January when my husband was unexpectedly laid off, and in fact we used the opportunity for him to focus on his Masters degree full-time (he’ll be done with an Urban Planning degree in May). Our low overhead and my higher salary gave us flexibility and prevented us from having to leave NYC altogether.

My fourth and final watershed moment has to be discovering the PF blogosphere. I’ve been so inspired by bloggers like Madame X and Boston Gal because (finally!) there is helpful information out there about how to manage money. It’s been fantastic to be part of the PF community and read so many different perspectives, and I especially love being able to see what other people’s salaries and savings look like since money continues to be a taboo topic with friends and family. With the help of blogs, I’ve taken control of my finances and developed a concrete strategy that will enable me to achieve my goals (namely, early retirement and self-employment).

As for what’s next for me, I’m currently struggling with the decision to leave New York, a city that I’ve come to love and hate. I don’t want to die in my apartment, yet I also haven’t been able to find anything better that wouldn’t double (or even triple) my monthly payment. I think a major trend will be people moving to smaller cities because the large ones have gotten so expensive. Most of us urban folks wouldn’t want to live in the suburbs, especially folks like me who don’t plan on having kids, so the smaller cities seem to be a good alternative.

My husband and I are currently weighing relocation options and hope to make the move in early 2009. I’m 32 years old now and feel like I should probably move before I get into the next age demographic. Secretly I’m dreading this move because it will mean starting over somewhere completely new again (and I actually really like my day job), but I suspect in the long run moving someplace with a lower cost of living and affordable real estate (so we can buy investment properties) will drastically improve our quality of life. In fact, the majority of our friends have already left New York for smaller, more affordable pastures.

But I’ll continue to keep everyone updated via my blog!

A great lesson here is that in NYC, if you can possibly buy an apartment whose monthly costs you can afford, do it as soon as possible. New York may not be immune to price declines, especially in the outer boroughs, but if you are going to stick around for any length of time, or at least be able to rent your place out if you leave, it's almost always a good investment in the long run. If E.B. hadn't bought her place, she'd probably be renting for twice as much, but instead she has equity that will serve her well if she moves to another city, even if she can't afford to upgrade to a bigger home here.
I was also struck by E.B.'s story about her education, and the trap many people can fall into when they want to pursue an artistic career but then find themselves so saddled with debt that they don't have time to do anything beyond the "day job" that was supposed to support the creative stuff. It's tough to choose.
And finally, good for her that she actually went to that finance workshop! I think many of us often turn our noses up at self-helpy things that might sound a little corny, or we think we already know everything they might cover, but the truth is that it can often be very helpful to get a reminder of good basic info, and a chance to give yourself a reality check!
Many thanks to Escape Brooklyn, and best of luck in figuring out your next move, though we'd hate to lose another NYC money blogger!

Other posts in this series:
New York Stories #1: Bronx Chica
New York Stories #2: Orange
New York Stories #3: Bama Babe
New York Stories #4: K
New York Stories #5: Frugal Female
New York Stories #6: SandyVoice


Anonymous said...

this is wild. doesn't anyone in new york city have children? households making six figures are just getting by...has it always been this way?

non-new yorker.

SandyVoice said...

Great post, EB!

Before I went through my big financial revolution a year ago, I also took a couple of financial workshops, and they made a big difference in my outlook. First of all, it was great to know I was not alone in feeling stupid about money, and needing to get it together. (That's one of the best things about reading this blog!) Secondly, the one small change I could face immediately after the workshop, tracking my expenses, made a big difference in my financial life. Thirdly, once I started to make changes, and saw positive differences, I was motivated to go on and change more. And fourthly, perhaps it's important to understand yourself, and your motivations for doing all kinds of stuff, which public discussion will make you examine.

By the way, Anonymous, yes, many people in NY have children, but everyone I know who does feels great financial stress. NY is a terrific place for people without kids, but although it's easy to support a family if you have a lot of money, it's really hard if you have an average or low income. I have a couple of students whose families are quite wealthy, so they can enjoy the advantages of living in this great city, but if you don't have much money, it's hard to raise kids safely, and hard to get them a great education.

Anonymous said...

I wonder if E.B. is still making those extra payments on her student loan, which she mentions is consolidated at 3.5%. I think she'd be better off taking that extra money and putting it toward her mortgage, which is a much larger amount of debt and is probably financed at 5-7% (depending on when she got the loan).

Escape Brooklyn said...

Thanks, Madame X, for including my story, and thanks everyone else for the great comments!

Anonymous 12:18, an increasing number of New Yorkers are raising children in the city. And unfortunately they all seem to live in my building. *laugh* The parents are converting their closets into bedrooms and everyone's fighting like cats & dogs, which I hear through my very thin walls! I don't envy them.

Sandyvoice, congrats on your great financial progress and I completely agree about the kid thing.

Anonyous 1:48, good question and I know technically it's the wrong thing to do, but I am still making extra payments on my student loan (3.5%) instead of my mortgage (5.5%) or home equity loan (8.125%). Actually, I do pay an extra $105/month to the home equity loan, but I obviously could be sending more if I focused on that instead of the student loans.

For me, there's just something psychological about having the darned student loan debt off before I'm 40. Plus since we're planning to move next year, I know those other debts will be paid off in a big chunk when we sell our apartment.

Mary said...

You climbed the career ladder just by focusing on it? You make it sound so easy!

Escape Brooklyn said...

Good point, Mary, it wasn't exactly easy. ;)

After I left that first fellowship, I paid my dues running an after school program and summer day camp in the Bronx for a year (that was NOT fun). But that experience helped me attain the coveted "director" level position with a Manhattan-based nonprofit. Then I parlayed the director experience into an administrative gig that's a lot less work and more pay, yet still nonprofity enough that I'm "giving back."

For me, climbing the career ladder meant changing jobs every year or two and aggressively pursuing higher level positions, even if it meant a ninety minute commute to the Bronx! I'd probably be looking to make another move right about now if I wasn't planning to leave NYC altogether next year, since otherwise my salary increases would only be about 3%/year.

Mary said...

That's all very enlightening - thanks. I'm especially curious as I'm just starting out in the nonprofit field and I've been contemplating how I will be able to continue in the field but make a decent living.

Escape Brooklyn said...

It's hard and after reading the other New York Story, "Comfortable Couple," I really wish I worked in finance! You can always volunteer or donate money to make a difference...

Anonymous said...

Get out of NYC is the only way to go. In my field the salary on South & Midwest can be 25-50% higher than NYC salary with cheaper living expenses....

Escape Brooklyn said...

Thanks, anonymous 8:40, I think you're right. I used to worry that my salary would drop when we moved, since supposedly salaries in NYC are so much higher, but then I saw Madame X's earlier post asking people how much money they made. I was amazed to see that folks from all over the country - many living in much cheaper cities than Brooklyn - earned the same or even more than I did!

So much for that myth that NYC salaries are higher to offset the higher living costs!