In New York City feeling rich requires at least $300,000 – and $50,000 more to actually be rich.
That’s because the cost of living index in New York is among the highest in the country at 204.7, according to the ACCRA Cost of Living Index published by the Council for Community and Economic Research (CCER). That’s compared to 132.1 in D.C., 134.5 in Los Angeles, 114.7 in Miami and the lowest in Cookville, Tennessee at 80.5. When one city has an index of 100 and other has 132, it means that the latter is more expensive then the former by 32%.
“The most significant difference in cost of living is typically in housing,” said Dean Frutiger, project manager at CCER in Arlington, Virginia, which sells cost of living indexes on its website.
The average two bedroom co-op in New York costs at least $1 million with a mortgage payment of about $4,000 a month plus $1,500 a month in maintenance and taxes after depositing a 30% or $300,000 down payment, according to Steven Kaye, president of Watchung, N.J.-based wealth management firm American Economic Planning Group.
Since rich people – you know, the ones who are actually rich – tend to spend tons of money on services, including decorators, art dealers, accountants, personal trainers, drivers, house staff, brokers, chefs, cooks and psychotherapists, average New Yorkers wanting to feel rich need enough disposable income to afford these kinds of services.
So, when coupling a $700,000 mortgage in annual payments adding up to $48,000, less $82,368 in federal, state, and local taxes, less $8,000 in FICA, less maximum 401(k) contribution of $16,500, less $12,000 for maintenance and taxes, less $7,500 for utilities, insurances, medical and dental deductibles and less $1,500 for miscellaneous deductions, a single New Yorker with no car, spouse or kids would need to earn $300,000 a year to have $10,000 a month in disposable income to just feel rich enough to spend freely on restaurants, vacations, clothing, gym membership, massages and the like.
“Five thousand dollars a month in disposable income is not enough to feel rich but $10,000 a month,” says Kaye, who adds – pretty optimistically – that people who make $300,000 a year include doctors, lawyers, accountants, fashion designers, insurance agents and newscasters.
For just $50,000 more a year, a single New Yorker can actually be rich, according to Kaye. A yearly income of $350,000 would allow for taxes, a $4,000-a-month mortgage, $16,500 for the 401(k), $40,000 a year in savings and a monthly spending allowance of $14,000 in disposable income.
The $300,000 person feels rich but needs $350,000 to actually be rich because the feel rich person needs to save more so that he or she can retire and actually be rich, says Kaye. “The one who has enough to save for their future with a cushion and is able to help others is truly rich.”
All that is well and good but the median family income in New York is only $56,000 compared to $52,000 in the U.S., according to the U.S. Census Bureau.
This is the third installment of the OOTS on Wealth series – here are links to part I and part II.