New York City exists in a dimension all by itself. Like a Black Hole that has formed upon the Eastern Seaboard, it is a place where conventional financial rules don’t apply. In Manhattan, you can feel poor after receiving your $3.6 million quarterly bonus because somebody down the hall just made $360 million, and while that larger sum will get you a good apartment, it’s still not enough to retire on.
The near-infinite mass of this concentration of funny money creates a great dent in the fabric of the cash-time continuum, and the gravity can be felt over a thousand mile radius as prices and attitudes are distorted. This has given rise to the urban legend that Mustachianism won’t work in NYC. “You need to make $350k here just to stay afloat – and at that level, you’ll still be far from rich.”
I like to collect stories from people who ignore this legend, and today’s is from a couple who started with a $65,000 income and $100,000 of student loans, and wound up debt-free and rapidly accumulating wealth just 9 months later. It’s a mathematical impossibility, right? Not if you exploit the alternative physics that are always present in financial black holes. Let’s check out the story.
Dear Adm Karpinsk,
A little background – my husband (then fiance) had been lurking on your site for months and began slipping your words of wisdom into casual conversations and feeling me out. He finally sent me your blog and I was hooked and fully on board for Financial Independence.
As we began to get our finances in order, he asked for my student loan details (the student loan I vaguely mentioned and had been assuring him I was “taking care of”), and he was shocked to see our net worth plummet after adding the $100k (@ 6.8% interest) worth of debt to our Mint account for tracking.
I was definitely in denial over the last few years since graduating, making the minimum payments or simply deferring when I could. I also was banking on Public Service Loan Forgiveness (PLSF) – thinking if I just make my minimum payment every month (which wasn’t even covering the full interest accrued), it would all be forgiven in 10 years! Score! This was my “taking care of the loan”.
My husband quickly poked holes in my strategy: I would be limited to the public sector, wouldn’t be able work abroad, wouldn’t be able to work part-time, or wouldn’t be able to just not work at all. On top of all this, my denial in dealing with the loan resulted in me accruing over $10k (!) in interest alone in the four years after graduating.
What followed was him presenting me with projections of how much interest we would pay if we instead paid this over the course of 5 or 10 years, which I was arguing for, and him then proposing we pay this off over the course of 15 months.
My argument was that we weren’t earning enough, I wanted to save, and we lived in one of the most expensive cities in the world – Manhattan. However, it quickly became clear that our hair was on fire and we committed to kill off this debt ASAP.
This was our financial landscape in June 2013, when we made the decision to go full Mustache:
Starting net monthly combined income: $5663
Rent: $1,695 for a 2br/2ba apartment in Manhattan. (Partially subsidized housing through my husband’s postdoc).
Spending: we weren’t using any way to track this, so I can’t say, but my guess it was on average $1,500-$2,000 on top of our rent.
Fast fowarding to the end result: By increasing our earnings a bit and tremendously cutting back on our spending, we were able to make payments towards the loan that ranged from $4k up to $10k each month. This graph (showing the loan balance at the end of each month) illustrates the annihilation of the loan from June 2013 to April 2014:
Here’s How They Did it:
In July 2013, the very first thing we did was dump most of our $32k savings account into the loan, bringing the balance to $67,627.32. We left only a small buffer for monthly expenses. Then, we set out to hustle.
- Around that time, my first 5% raise kicked in, which didn’t hurt.
- We set to work renting our extra room on Airbnb, adding an additional $2-4k/month to our net income.
- I picked up additional work, earning an additional $10k over 6 months.
- In December, I negotiated another 5% raise.
- My husband received a modest raise (2.5%) during this time as well.
- We also reduced our buffer to $1k since we had lines of credit and were growing impatient – some might say we were living on the edge.
- In January 2014, my mom, who thought what we’re doing was awesome, gifted us her old gold with permission to sell it. Through Midwest Refineries (thanks for the pro-tip on how to sell gold), we receive about $4.5k for it which was dumped directly it into the loan.
- Throughout this time, we sold pretty much anything we didn’t have a use for – extra furniture, an extra iphone, a guitar, my wedding dress – and it added up!
In terms of spending, we cut back a lot and, in retrospect, this had a much bigger effect than the additional income we were able to bring in. We live in Manhattan because my husband has a 2 year post doctoral work contract, so couldn’t change that situation just yet.
- We cut down eating out/going to bars, which has been the biggest challenge since that’s just what people do in NYC (drinks, brunch and drinks+brunch).
- My husband switched his cell carrier to a pay as you go (luckily, my employer pays mine).
- Our transportation costs are super low since we don’t have a car, my husband lives walking distance to work, and I have employee discounted transportation (~$80/month for unlimited subway/bus use), and taxis just did not exist for us (exception: Costco runs).
- Absolutely no unnecessary purchases (clothing or otherwise).
- All our expenses were placed on cash reward cards (Chase Sapphire Preferred, AmEx Blue Preferred for groceries).
Usually our monthly spending (apart from rent) fell between $800-$1k/month. We could have probably done better, but we still managed to pay the loan off 6 months ahead of schedule and never once felt deprived of anything, so we’re happy with that. During this time we also had a small, simple wedding (my dad generously paid for this), took a honeymoon (using wedding gift income), and went back home to California for the holidays.
After all of this, I can’t stop looking at the “loans” section of my Mint account, it’s unreal:
We couldn’t be happier to be free from that 6.8%! From here on out, we plan to maintain our lifestyle and spending and looking forward to seeing those loan payments go into savings and investments instead!
The Happy Ending
I get stories like this all the time. Efficient living works anywhere in the world. In expensive areas, the higher base costs are offset by the increased presence of weird anomalies that you can harness to your advantage. This couple used AirBnB to leverage the value of their partially-subsidized housing. They had a large unproductive savings account that they put to work by dumping it into the high-interest loan. And they took the incredibly rare step of combining Costco runs and home cooking with Manhattan, the place where most people don’t even remember if their apartment has a fridge in the kitchen.
There is always a way to live better and prosper in your own system, as long as you acknowledge this truth and set to work finding it, rather than wasting any energy explaining why these tricks could never work for you.
Efficient Living notes from within this article:
- For great (and cheap) phone service, I’m still a big fan of Republic Wireless (and Ting)*.
- Our NYC friends leveraged several reward credit cards because of signing bonuses of up to $400 and reasonably high cash back percentages. The cards they used are among my own favorites, I maintain a list of them here.*
- The place I discovered to ship unwanted gold and silver artifacts for recycling (with a high payout) is called Midwest Refineries, I described the experience in this post.
- Does Costco really save money? For me, it’s almost a 50% discount on my most expensive grocery staples – see article here.
*Those first two things are also the main source of this blog’s income, so I make a point of including a link occasionally to keep the lights on here, to allow the rest of the site to have minimal advertising. Thanks again for your support!