Major Changes
How I’m handling a big life change.
I won’t bury the lead here. After 5 years, I am capitulating and moving to NYC. I’m actually pretty excited about it in all honesty.
Nonetheless, this is a major change for me. Specifically, in regard to the financials. My cost of living will rise pretty significantly.
I figured I could walk everyone through how I have gone about this move. It is not uncommon to see young professionals live dynamic lives. For better or worse, our finances can dictate some of these changes.
Let’s get to it.
Cash Reserve: I just had the absolute pleasure of making my security deposit and paying the first month’s rent. My current lease doesn’t end until the end of August and my last rent payment was due this week as well.
That’s some serious outflow and exactly why I think a cash reserve is so important. My cash reserve padded me for these pretty significant expenses. One-time expenses like these are exactly the purpose of the reserve.
Savings Rate: I will have to adjust my current automated savings. It pains me to see it go down, but as I always encourage my young professional peers, putting yourself in the best place to grow your earnings may very well outweigh an additional few bucks saved each month.
Rent will increase by 67% (67, nice). This is obviously a major change but through careful planning, I know that adjusting my current savings rate will allow me to comfortably cover this on a monthly basis.
For the time being, I have turned off my automatic contributions to my brokerage account. (Don’t worry, retirement savings are intact!) This is purely temporary and will likely last 2-3 months.
This is going to allow me to tune into my cash flow and handle any other one-off expenses like buying furniture, moving costs, etc.
I know that most would say, “Pay yourself first, Cliff!” And they aren’t wrong. But these one-off expenses are likely to be significant over the next couple of months. I’d prefer to have the cash flow support me during the transitionary period.
Budgeting: While I’m personally not a fan of spreadsheet budgeting, I will be closely eyeing my total expenses.
The main purpose of this is to differentiate one-time expenses and recurring lifestyle expenses. Buying a new bed frame is a one-time deal. Getting a meal with my pals on a Friday is something I hope to do every week.
Being able to identify the one-offs will allow me to grasp what amount of money I need to feel comfortable on a monthly basis.
From there, I’ll be able to understand if I am living on less than my monthly income. I can then begin directing funds back to my brokerage.
Personal finance is of course, personal. There are ample ways to go about a big change. This is what works for me!
The planning before the move:
One of the biggest concerns with a move like this can be the overall affordability. I knew exactly my upper limits on what rent needed to be in order for me to maintain what I’d deem a comfortable savings rate and a comfortable personal expense figure.
This is super important because it lets me outline the changes that will occur prior to the actual move.
Essentially, I said to myself, “If rent is $X, how much does that leave me on a monthly basis for my own expenses? Does it leave me with any capacity for savings?”
From there, I used my net paycheck amount to fully grasp my spending power but there is always the unknown of moving to a new place. I’m aware that the first few months will be expensive, which is exactly why I am giving myself some grace when it comes to monthly investments.
Personal finance is largely about levers. In my own scenario, I built multiple levers that I can lean on during this time such as my cash reserve and temporarily adjusting my savings rate.
Next time a big change is coming your way, make sure to take a second to pause and think how this might play out financially. I can honestly tell you that I personally feel much more confident having outlined all my parameters and trying to understand the monthly adjustment beforehand.
This is where planning can be so useful. Life is constantly changing. In many cases, our finances dictate the extent of those changes. Having a plan before the event can reduce a lot of the financial stress associated with a big change!
This is for informational purposes only and is not intended as legal, tax, or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.