I have a secret that I’ve been meaning to share.
It seems like big news, so let’s get to it: we left New York City. That’s right, we are no longer New York State residents. It’s something that I didn’t think would ever happen but here we are … no longer living in NYC.
A bit of background
I first moved to New York City, or more specifically Brooklyn, in the summer of 2008 when I was a summer associate. That summer was right before the Great Recession and so everything seemed to be going well in the world. The housing market had cooled but wasn’t imploding and nobody had heard of the concept of frozen credit markets. I liked Brooklyn so much that after living there for three months, I knew I wanted to stay.
When I returned to NYC after my third year of law school, Brooklyn had a lot of advantages. For starters, it let me feel like there was separation between work and home, even if it was only physical separation. I appreciated having smaller buildings and smaller shops and less people on the weekends and during the evening when I wanted to decompress from working at a major law firm, rents were slightly cheaper than Manhattan, but not cheap enough that you could say I was living in Brooklyn to save money.
It just seemed like the perfect home for me over the years. I moved to different apartments and to different parts of Brooklyn, but I always stayed within the borough. I figured if I ever left New York, it would be to a completely different location in the US and so always assumed that I would stay in Brooklyn as long as I lived in New York City.
Everything was going fine with that plan until water started leaking into our apartment from a hole in the roof. This had been an ongoing problem for several years and each time we complained the building management figured out a way to solve the immediate problem and made the cosmetic repairs to patch the drywall. This would work for several months, sometimes up to nine months before we’d have an extremely heavy rain storm or series of rainy days, and the problem would reappear. Again, to our surprise, the building owners never knew about this condition and when we finally raised it directly with the landlord, they fired the property management company and decided to do something about it.
By this time we were tired of dealing with their problem and only wanted out of our lease. Luckily they were accommodating and let us leave our lease, which I think bought them some time to actually fix the property properly. Before putting it back on the market, I decided to take the opportunity of having to move because of a leaky roof as an opportunity to reevaluate our living situation.
On “lifestyle inflation”
As I’ve written about many times before, lifestyle inflation is a one-way street and it only goes in one direction: up.
It’s very hard to walk your lifestyle back when you’re looking for a new place to live. There’s a chance for you to reevaluate all the things that are important to you and see if you can potentially save money. At the same time, when we started to look around, I also knew that it was time for a bigger apartment. We had outgrown our one bedroom and needed more space.
So how do we get more space but keep our spending in check? We make sure that the move was revenue neutral.
What is a revenue neutral move? I’m glad you asked.
I presented the same concept to my wife one evening in the form of a spreadsheet that looked at our current rent payment along with various other services we used to make ends meet. For example, gym membership, cleaning services, etc. I told her that if we move to one of the fancy “luxury” buildings, we might be able to cut certain expenses and redirect those funds toward nicer amenities and that I would be fine upgrading our lifestyle as long as we didn’t spend any more money than we’re spending now.
It’s not easy to upgrade your lifestyle without spending more money, so I took this as a personal challenge to find a better living situation for us with more space, more amenities, and more of the things that we wanted without actually spending any additional dollars.
The biggest factor on the spreadsheet was whether we could move outside of the five boroughs of New York City and no longer pay the New York City income tax. New York City is one of only a handful of cities in the United States that charges its own income tax.
If you read my tax analysis from a couple of months ago, you would see that it’s actually more burdensome to live in New York than it is to live in California despite California’s image as a high tax state. The reason for this of course, is because in addition to federal and New York state taxes, you also have to pay a 3.85% income tax to the city of New York.
Contrary to popular opinion, the New York City income tax does not apply if you live outside of NYC but still work in NYC. There seems to be a lot of confusion among what I would call “real New Yorkers” who have lived here their whole life because previously, until about 2000, there was a law in place that required commuters who lived outside of New York City, but worked inside of New York City, to pay the New York City income tax. Therefore, a lot of people assumed that as long as you live work in New York City, you have to pay the tax regardless of where you live.
Thankfully that’s not the case.
Having already done the math, I knew that if we were able to live outside of New York City, we would save something close to $1,000 a month in taxes, which meant that we would directly have an additional $1,000 a month to spend on living expenses.
I’ve often said that taxes are a public policy tool. The purpose of which is to shape and guide individuals to make certain decisions in the market. I don’t think that taxes by themselves would cause too many people to move from one place to the next, but when you are considering a move, why wouldn’t you keep taxes in mind with an additional $1,000 a month?
For us, we wanted to see whether living outside of the five boroughs would make sense. Would the free upgrade in lifestyle be worth the potential downsides of living farther away from the city? Would saving living farther away only make us miserable because we were isolated from friends, family, and potentially subjecting ourselves to an hour commute?
The easiest way to solve this problem was to begin exploring, so that’s exactly what I did.
On the weekends, I hopped onto the trains and started exploring areas outside of New York.
The hunt begins
One thing I quickly realized – and I’m ashamed to say I didn’t know existed — is that New Jersey is just right across the Hudson River (I joke of course. I knew it existed but had never really considered it as a place to live).
The “Jersey” right across the Hudson is nothing like Jersey Shore. In fact, it’s basically an extension of New York itself. People have been calling Hoboken the sixth borough for many years. For that reason, it was one of the first borough’s I visited. The crowd seemed a little young and we were looking for more peace and quiet, so I kept looking.
That’s when we discovered Jersey City, which is directly west of the world trade center. It didn’t take more than a couple of hours of walking around before I realized that it ticked many of our boxes. There were multiple transportation options to Manhattan. You could take the path or the ferry. They had plenty of restaurants, many of which Yelp said were fantastic and wonderful places to eat. There were grocery stores and wine stores and little taquerias everywhere.
Also, it wasn’t like we had just discovered the place. Goldman Sachs moved their headquarters to Jersey City to 30 Hudson Street in early 2008.
Those workers had been commuting into Jersey City for years and likely infusing the local economy with tons of cash. There were Starbucks everywhere, a sign that you’ve definitely made it to a gentrified area. The one thing that seemed to be missing was the number of people. At first I thought because it was a Saturday that perhaps they were still sleeping or hiding away in their apartments, but as I visited more and more, I realized there’s just a lot of space and while there were still plenty of people, my expectations for living in a dense area similar to Manhattan, we’re completely out of whack with reality.
It felt like we could breathe or like the Washington DC version of New York City without the toxic politics, armed with a revenue neutral spreadsheet, the knowledge that we would be saving nearly a thousand dollars on taxes. We set out to find some options in our price range in Jersey City – unlike Brooklyn, which used to be considered slightly cheaper than Manhattan, but which is actually similarly priced at this point, Jersey City offered real value.
Now I’m not saying that Jersey City is super cheap like if we were searching for apartments in Kansas City, but Jersey City was definitely cheaper than anything you would find in Brooklyn or New York. For those of you that don’t know, luxury buildings are all the rage and New York, which basically means that they try to be all inclusive in the services they offer for you – that was a standard we were looking at.
Well, when we found a building overlooking liberty state park, a local marina and the Statue of Liberty, we thought that it probably couldn’t get any better than this. When we found out we could get a two bedroom, two bathroom, 1200 square foot apartment in a building with a gym, a concierge that handled packages and dry cleaning along with a roof deck that included grills and a pool, we knew we wanted it less than 12 hours later. We put in the application and secured the apartment.
Now that I’ve been living here for a couple of months, I wonder why I didn’t move sooner.
I think it’s important to have moments like this where you challenge your understanding of the status quo because those are the moments when you can have real opportunities for growth.
For us, this meant essentially a cash free upgrade and lifestyle, one that we’ve been thoroughly enjoying ever since. I wouldn’t suggest that a first year associate who had never lived in New York start by living outside of NYC unless you know that’s what you really want to do. But a fifth year associate who is think about other financial goals and wondering what they could do to accelerate their progress?
As a side note, one of the other motivating factors for moving to Jersey City is that I actually improved my commute by moving physically closer to my office. And now I no longer have to ride the New York City subways!
So the point isn’t that you just need to move farther away to upgrade your lifestyle. It’s that we should constantly be evaluating our decisions to make sure they are right for us. As you go through your career, your needs will change and you should make sure to adapt with those changes. If you do, I might one day see you on the ferry on our way to midtown.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He knows that the Bogleheads forum is a great resource for tax questions and is always looking for honest advisors that provide good advice for a fair price.
Nine thoughts on We Moved! Goodbye NYC
One thing to think about in the NYC vs outside the city debate is that NYC may have income tax, but (particularly if you are thinking about buying a place), the real estate taxes are lower than in many suburbs. Obviously not something you have to factor in separately if you are renting, but worth looking into if you are buying, particularly in suburbs with “good” schools.
Congratulations on the move! Anytime you can gain extra momentum and retain a big city salary while moving to a lower cost of living in area is fantastic.
The commuter exemption is a big deal. They don’t do that in Philly or St Louis, two of the cities I’ve lived in with income tax. The toughest pill to swallow is big companies getting exceptions while little companies have to pay
Great post–thanks for sharing the backstory on this. Any ideas or resources for those around LA looking to save on taxes/cost of living? I’ve heard that Santa Monica has a high city tax for example but haven’t dug in to figure out information re: neighborhoods, commutes, potential tax advantages, etc. around the LA area (recently moved and started biglaw here). Thanks and please keep writing!
Congrats on the move! Being born and raised in NYC (and meeting my husband in high school almost 30 years ago) leaving NYC is almost unfathomable. But we did the same calculation, and now that our jobs are mostly location independent, we could reach our financial independence number now if we moved out of NYC. We haven’t moved yet (youngest is finishing up HS), but it’s amazing what a change in location will do, enabling FI in our 40’s instead of 50’s or even 60’s.
Yes, I feel sorry for people who were born and raised in NYC or San Francisco. Both are amazing places but it’s a bummer that you feel tied to the area because of friends and family while meanwhile every 20-something in the country wants to live in the same city as you! Most New Yorkers I know can’t imagine leaving but everything has a cost. As you said, are you willing to work for another 10 or 20 years to stay in NYC? There’s no wrong answer.
“I took this as a personal challenge to find a better living situation for us … without actually spending any additional dollars” – This is exactly the type of FI pursuit that I like. Optimising my spending to ensure that I’m getting the maximum value (to me) when I spend my hard earned cash.
I also think that geo-arbitrage to reduce income taxes is a great strategy (with the logical extreme of this approach being 0% income tax!)
Finally, I’m not sure what the rules in Jersey City are but have you considered trying to make your move cash positive? Since you have a second bedroom (and presumably are out at work all day) is there an opportunity to earn a little extra by renting out the spare room from time to time (e.g. AirBnB or another similar service)?
Congrats on making the move to the right side of the Hudson! Jersey City is great. We found ourselves in a similar situation a few years ago. We’d been living in Manhattan for a decade and although my now-wife would disagree, at the time I couldn’t imagine living anywhere else. Then, out of the blue, we got the opportunity to move to the West Coast for a few years. I was very conflicted about the move and it was a difficult first few months of adjustment. But looking back it was like having a veil lifted – my entire perspective about lifestyles and what you get for what you pay in different parts of the country really changed. (Or maybe I’m just getting old!) I miss being younger and living in the city, but I can’t imagine raising my family there for a bunch of reasons.
I love this article. My wife lived in the lower east side and it just became untenable. She’s originally from NJ (a great place to live) but she ended up moving even more far afield. We live in Toronto, Canada. At the time it was far more affordable although that is quickly changing. Good luck!