Reader Mail: What We Sock Away
So, I have a question I’d love to put to Billfold readers. The background: Recently, my husband and I applied to rent a $2,300/month 1.5 bedroom apartment in Queens. We have okay credit, and our combined incomes are about 70 times the monthly rent. So this should be a no-brainer, right?
Unfortunately, no. The landlord, as part of the paperwork, asked to see our bank statements. When we sent them over, he said we lacked “substantial liquid assets” and denied us the apartment. His logic was, “If one of you loses your job, I need to know you have plenty in savings so that you can still pay your rent”. The irony is, I actually did have a lot in savings at one point—but we raided it to pay the deposit on our current apartment, and then I became unemployed for five months (which tends to deplete your savings), before getting my new job 6 months ago. We always thought we were pretty responsible, as we still have a few grand set aside, and a few grand in a 401(k)—but he said that wasn’t sufficient for what he’s looking for.
So, my question is: How much do people usually keep in savings? My husband and I are both in our late 20′s, and have lived in NYC for years. We’ve always assumed most people here—especially renters—don’t usually have substantial savings accounts (or worse, are paycheck-to-paycheck). Are we wrong? Or is our once-considered landlord being unfair? — J.M.
My friend Dave was my co-worker before he became my friend. He didn’t work in the same division as I did—I was in editorial, and he worked in programming—but we sat at the lunch table together, me with a homemade sandwich and greek yogurt, and he with a glass tupperware container filled with last night’s leftovers: roasted vegetables, minestrone soup, pasta with homemade tomato sauce. I asked Dave why he didn’t go out to buy lunch with other people in his division, and he said, “probably because of the same reason why you bring your lunch to work: My wife and I are saving money to buy a house and have a baby.”
Dave made twice as much money as I did—I know because we talked about it one night at happy hour and he shook his head at my salary, and wondered how writers are able to earn a comfortable living. “Probably by doing the same thing you do,” I said. “I spend money on the things I need, and I try to save the rest of it.”
Before Dave began earning more than $100,000 a year as an engineer, he was a poor grad student who lived by himself in a bad neighborhood in Southern Brooklyn. Dave says there were drug dealers in his roach-infested building, that residents smoked weed on the stairs, and that he obsessively checked the crime reports in his neighborhood to figure out the places he should avoid, and the times when he should stay in his apartment. When he finished his graduate program and went to work for a bank, Dave went from earning less than $30,000 each year to suddenly earning more than $100,000.
This is the part of the story where the poor grad student who is making big money in banking is supposed to say goodbye to his terrible neighborhood and give himself an upgrade to a better life. But Dave didn’t move—he kept his grimy apartment, and socked away as much money as he could. “It’s easy to expand, when you have the money,” he said, “but it’s harder to contract when the money is no longer there.”
My version of keeping the grimy apartment happened when I went from earning $30,000 a year to switching to a job that paid about $50,000 a year, and instead of making an upgrade, I kept my apartment and roommate in Queens, and socked away as much as I could for a few years as my career—and salary—grew. I saved because I wanted to quit my job and start a website (this one), I saved because I wanted to eventually live comfortably on my own (which I do now).
So, how much do people keep in savings? It can be zero dollars. It can be half of a paycheck. It is a question we answer after the bills are paid, and there is money leftover that isn’t needed to fulfill any financial obligation: Do you save that money, or do you spend it? We set priorities. Most of us spend it because we tell ourselves that life is too short, and we want to spend it on a thing we want to do or own. Some of us seek balance and spend a little, and save a little, and others are content to save it all, and dream about a really big thing they could do with the money in the not-too-distant future.
You can live in New York City and save money, and you can live in New York City and spend all your money—the latter just happens to be more common, because it is the easier thing to do. The hard part is finding the income that allows you to save. The harder part is actually saving once you do find the income.
Unfortunately, the market is not in favor of renters. The market here is highly competitive, and landlords can hold out for the perfect tenant. When I applied for my current apartment, I was competing against six other potential tenants. I had the money and the good credit score, and that edge helped me beat the odds. I felt very fortunate.
You once had plenty of money in savings. Life happens, and that money was used during a rocky time period (which is one of the main reasons the money was there in the first place). It’s disheartening that the landlord you dealt with expected you to have a big savings account. But whether or not you’ll have a big one again is up to you.
See previous advice columns — Questions: mike@thebillfold.com
Photo: Jay Woodworth
“our combined incomes are about 70 times the annual rent.”
Wait, what?
Together you’re pulling in 1.9 million a year and you can’t sock away a couple thousand to reassure your landlord?
@Iglooramous I’m sure this person meant “monthly” rent. FIXED.
They may have meant 70 times the monthly rent, which would be a much more reasonable $161,000 annual salary between the two of them.
And they HAD socked away a couple thousand dollars (“we still have a few grand set aside, and a few grand in a 401(k)”) but that wasn’t enough for the landlord.
Okay, different perspective from someone who’s worked in real estate:
The standard requirement for an apartment is for the prospective tenants to make 40x the monthly rent (of their share). 80x would be the requirement for a guarantor, but you clearly already make enough to back a lease on your own. And you have savings! So, chances are, this has nothing to do with you guys not having enough savings and everything to do with the landlord.
Maybe he is just super paranoid and conservative, maybe he is holding out for better tenants, maybe he just didn’t like your haircut, or maybe he didn’t like your occupations (are either of you lawyers? Landlords HATE lawyers and often reject applications based on that even though it’s technically illegal and they’ll never say it). Some of this is technically illegal and some of it isn’t.
In any case: most landlords would have been happy to take that application. But the problem is with him, not you. Maybe consider suing him?
@Laura Yan@twitter Yes! We should emphasize that his letter writer should not feel disheartened because of the landlord’s rejection because the couple certainly have their finances in order. As a real estate person, perhaps you can clarify: The landlord can basically turn down any rental application for any reason as long as they’re not discriminating based on race, age, gender, etc, correct? Otherwise the landlord can choose whomever he or she wants? I’m guessing in court, this landlord could just say he found an “okay” credit score insufficient, and was looking for liquid assets to counter that?
@Laura Yan@twitter
Agree wholeheartedly. This sort of rejection is unusual in reasonable rental negotiations. As an anecdotal aside, I’ve snuck past the most demanding landlords without having a pot to piss in.
The entire point of a rental deposit is to give some buffer room for a landlord to either claim damages or recover partial unpaid rent. This kind of scrutiny – for QUEENS of all places, not even prime Manhattan – is mental illness. There are a lot of wackos who own real estate in NYC, even huge buildings or super fancy-schmancy stuff.
Mike, why do you have to spendshame everyone as a default reaction? If you’re going to do that, at least give the answer seeker some decent numbers/figures to work off of. Based on back-of-napkin calculations, it would be healthy for the answer seeker to be socking away $2000-$2500 a month, and at that rental level you’d want at least 3 months worth of expenses/savings around, so that comes out to keeping about $12,000 as a base savings level, if you can. Use anything more than that to pay off debt – or put the rest in some sort of less-liquid safe asset class (CDs, equity investments, etc.) that earns a return on it, and keep it around for a future house purchase / down payment, between $60k and $100k, – and, beyond that, consider riskier investments like becoming a minority owner in a local business or something like that. Or at least don’t eat cold leftover soup for lunch.
@Laura Yan@twitter Housing rental law differs in different places. I don’t live in NY, but in my state if a landlord accepts an application with fee, they are supposed to provide you with their requirements to rent before taking the fee and only reject you if you don’t meet a financial requirement provided in advance – because it is all too easy to discriminate and can make finding housing VERY hard for some people. They are also only supposed to run applications for one applicant at a time in the order they are received.
In my experience though, most small landlords (which is the majority) don’t follow all the laws. You won’t even know half the time whether they are following the laws. And as a renter, there isn’t much you can do, unless you want to pay to bring them to small claims court up front, which is a couple hundred dollars and a huge pain in the ass. Mainly, I just assume you escaped a horrible landlord.
@Brian Van Nieuwenhoven@facebook Okay, whoa. I’m not spend-shaming anyone, and anyone who has been reading the site knows that if I have a default reaction, it’s “Do What’s Right For You” — that what works for me may not work for you, and that the reason why we include people with all different types of money backgrounds on this site is so that people can see that everyone does money differently, and I hope people can use these examples to figure out what’s best for them. If you have no savings or assets but are living a happy and healthy life, more power to you. Having money in your pocket doesn’t mean anything if you’re not either of those things.
Not sure how much/if it varies state to state, but I’m pretty sure landlords are allowed to discriminate against whomever they want. It’s different once a rental agent or property manager enters the picture since they are doing business. I think the logic is that a landlord is not considered to be entirely in the business of renting property and is treated more as a private citizen, and it not illegal for private citizens to discriminate.
@Mike Dang
Ha, well, that much is true – you intend to encourage people to be happy. I think, as a matter of style and not intention, you have a way of being very direct and open about the way that you live and perceive money, and you are definitely someone who works over spending/saving decisions far more than the average person. You are comfortable with values and decisions (and a constant onslaught of compromises) that would cause some people to become overly anxious and give up trying to manage money. I’m totally on-board with about half of your advice, and the other half makes me think, “Yeah, that would work, but I’m gonna skip that anyway and now I need a drink after reading that.”
I think, in this case, you went right for the general philosophical advice about saving, but when it comes down to it, I think they’re on-board with that. They just want to know, “What’s enough? What’s our comfort zone?” Hard to say precisely, and huge setbacks (medical expenses, unemployment) have ways of turning huge nest eggs into burnt cinders. But they actually seem to already be on the right track. Their trigger for uncertainty – the dumb landlord – was a false indicator. Their savings are depleted, but it’s not because of what they were eating for lunch or because they didn’t settle for a grimy apartment. They were totally within the right price range for an apartment, in terms of being able to afford the rent and also being able to save a reasonable amount (the oft-quoted 20-25% figures) every month on top of it. Even with one of them laid-off and on UI, they’re making $100k (monthly income extrapolated) and can deal with $2,300 in rent for a while if their debts are not excessive.
Most people are terrified of having to make compromises like “leftover soup” and “grimy apartments”. (Some are ok with that, but to each his/her own) I know you’re not trying to trigger that in your advice or make people feel inadequate for not being able to handle a daily onslaught of meticulous expense planning. It’s always a good idea to go back over financial advice articles and look at how it is all framed. Some things that often sound totally sensible and prudent as individual thoughts can come off wildly unappealing and unhelpful when presented in writing, in aggregate, to a person who is in over their heads. Frankly, we’re all in a little over our heads in these labor & housing markets. That $2,300 apartment is probably $900 anywhere outside NYC or SF, and similarly $160k/yr would be a king’s ransom. Wouldn’t need a website to answer any of these questions in the first place.
Anyway, hope this comes across as constructive and I have to stop writing cause I’ve gone on too long. I do love the site. Cheers, man.
@Brian Van Nieuwenhoven@facebook very well put.
Yeah the landlord is just dumb/nuts. I’ve been apartment hunting in (equally?) competitive DC recently and the variation in what they’re looking for is pretty incredible.
I know this isn’t the real question, but I just went through the apartment search process in San Francisco. For the place we really wanted, we simply offered a sizeable cash key-fee. All the qualifiers- references, credit score, savings account size, haircut style- and all of the competition just fell by the wayside and it was ours the next day. It felt kind of gross, but falls into the vague free-markets defense.
In terms of what we save, we live on my partner’s income and save mine. We make less than J.M. In terms of how much of our savings is liquid, about 10% of our combined annual income in a money market account. But, you know, we’re really into saving.
So, slightly-but-not-really related question, but when people say how much money they make, are they usually saying their before-tax amount? I am relatively new to making real money, and I technically make about $40,000 and my job, which turns into about $25,000 after taxes and whatnot, and I never know who to align myself with in terms of earning!
@buckachu you make $40,000. You might say colloquially that your salary only comes to $25K take-home, but when people talk about their salaries they are talking about the gross, not the net.
@mishaps Thanks! I thought so, but I have always been unsure on that.
@buckachu Yeah, it can be confusing, so I try to always say “my take-home is $2700/month.” I don’t even think about the taxes/Social Security etc. as income that was mine, because it never goes into my account.
Regardless, when push comes to shove. Who would ever wish they had saved less?
@The Dauphine I would wish I’d saved less, if it meant I couldn’t have taken the trips I have, or lived in the cities I’ve been able to live in (NYC being the most expensive, but definitely worth it one). Money is there to support life, not the other way around.
@WaityKatie Well there’s that, but what about emergencies, and retirement?
@The Dauphine What if you die suddenly at 62 1/2 and have never been to France??
@The Dauphine
Then my entire life would be a total, uncultured failure? I don’t know. Travel is a privilege for the wealthy in this economy.
@The Dauphine I wish I had saved less in August of 2007, right before I studied abroad. I put $1K in a Roth IRA and by October, half of it had magically disappeared.
@cuminafterall Truth. I feel like putting money into my 401k-equivalent right now is similar to throwing it down a well. I don’t know, I guess it’s a very personal thing, I don’t care about having nice “stuff,” but there are things I will happily spend on, like experiences and having a nice place to live that isn’t scary and has a dishwasher. But it’s an individual thing!
Okay, here’s a renting question. In such a seller’s market for apartments, is it worth trying to negotiate? I’m afraid I’ll have to go with a broker this time (curses!) and I don’t want to pay more than an extra month’s rent, but now they’re charging more. How do you start that conversation? Hey, buddy, I know you’ve got 6 people who want this apartment, but I’ve got better credit and a more stable income and therefore you should put the rent down $100 a month and also not charge me as much for your services. This just sounds ridiculous in my head.
This happened to me a bunch last year. I’ve kind of stopped looking for apartments because of it. My salary is somewhat low (for NYC), but I had about 20K in savings/401K/etc and was looking to rent a place for $1300/month. The dream place (Park Slope, top floor of a 120-year-old, well-kept brownstone, giant porcelain sink) turned me down, and I quote, “You seem like a really responsible person who has obviously got herself together and would be a great tenant, but we really need to find someone with a higher salary, because you just never know in this economy.” Sigh.