Wednesday, August 24, 2011

Breaking up on a really, really small budget

"You won't be needing that"

I've spent a lot of time writing about food and weddings on this blog. H and I are pretty tight with a couple who broke up a little while ago. The break up deeply shocked at least one member of the couple. I reminded me that I once broke up with someone I lived with in this city....and that, that break up almost financially ruined me.

Renting in NYC is damn pricey

It's no surprise that living in NYC costs a pretty penny. Rent is especially high, and tends to dictate a person's monthly allowance for "luxuries" like gym memberships and cable. I spend more in my rent monthly than my sibling spends in mortgage payments and insurance every month. Why would anyone ever do that?

Well, 55% of all New Yorkers rent their apartments. I would buy my apartment if I could, but alas a mere 350 sq feet in the cheapest neighbourhood South of 96th street will cost a body at least $200 000. Those 350 sq feet will cost you a lot more if you plan on living in any neighbourhood you heard about on Sex and the City or any other number of fluffy, syrupy television shows about New York. It costs a lot to buy here, about as much to rent. If you are low to middle income, it can be very difficult to gain financial ground. Many people live hand to mouth just to put aside an emergency fund, let alone a down payment.

Add to that the cost of moving - a minimum $500 for movers to schlep your stuff from 5th floor of the walk-up you can afford to the top for floor of the next walk-up you can afford, along with basic moving supplies, and the dreaded first and sometimes last and sometimes even an additional month's rent as security for the new apartment and a traditional move in New York for the lowest end studio or 1 bedroom apartment costs at least $2.5K, usually more.....definitely more if you include a broker's fee.

High rent +break ups = more to worry about than who is keeping the apartment

It's very hard to find affordable housing here. Until the 2008 market crash, most apartment dwellers earned their apartment by being taken to town by countless real estate brokers (15% broker's fees for low end apartments). It's even harder to find an apartment with a few desirable features like a partial kitchen, southern exposure or on site laundry. When you find that big apartment, with the echoey kitchen, short number of flights, southern exposure and maybe even a closet you can convert into an office, and slam down those broker's fees and down payments'll fight to keep that apartment.

Most articles about apartments and breaking up in New York focus on exactly that - who gets the apartment? Such articles gloss over the harsh reality of live-in couple break ups - that is the end of a long term relationship can be financially devastating, even if you don't share any assets.

High rent + sudden break up = WTF do I do now?

What do you do when the break up is sudden? In the case of our friends, one simply left the other with literally minutes worth of notice. Moreover, the one that left makes many fold the income of the other and had been paying the majority of the rent. What do you do when you are mid-lease and caught completely unawares? What do you do when you don't have an emergency fund?

I found myself in very similar circumstances 6 years ago. In my case, my ex and I were olympian credit card users as well. For me, the problem became managing consumer and student debt on 1/3 of my previous year's income AND keeping the apartment. My solution was pretty simple - pack and move to cheaper digs until things emotionally and financially settled down.

How I broke up on a budget in NYC

For me (and I'm not a financial advisor) the best approach was to cut losses and cut losses fast. How do you do that? I took a long hard honest look at my money and fought to preserve it. Here is what I did that first week.

1) Listed all of my basic costs
It was painful, but I sat down and listed out every monthly expense I had

2) Listed all debts and assets - shared or otherwise
This was a really awful but necessary experience. I owed well ~100K on my own. He owed money as well. If I intended to financially survive after this hiccup, I needed to know what debts were due right now and how much I owed for the remainder

3) Listed all of my income coming in.
I listed all income actually coming in..not income I thought might come into my hands

4) Basic costs + debt payments - income = could I financially get by without him?
Nope. I very quickly realized that I couldn't financially survive for very long without some support.

and then over the 1-2 months I...

5) spoke to my landlord about breaking my lease
I told my landlord what had happened and offered to help find a new tenant for a few months down the road. They were very understanding and I was spared the cost of my security deposit.

6) found a considerably cheaper apartment - without a broker
This is important - I skipped using a broker. That meant a lot more footwork for me. In the post-2008 real estate market, many management companies are simply renting directly to the consumer - no fees attached. I stayed in the new digs for about 6 months while I got back on track. The switch to a cheaper place made a big difference in my ability to financially recover. Had I been really been with it, I would have found someone looking for a roommate - still, my new digs were cheap enough to let me pay the immediately bills and get my footing.

7) did not use a mover
I needed that $500. Are you kidding me? I borrowed and rent vehicles and enlisted friends to help move what remained of my destuffed stuff. On the odd chance that my friends could not help me, I threw out or sold well over half of what I owned.

8) cut unnecessary costs
I dumped gym memberships, stopped eating out and (after a brief spurt of insane consumerism) I stopped shopping. It was time to gird the wallet

9) did not ask my ex for specific the beginning
I did not want to have to hire and pay a lawyer to fight my ex for my property, so I made the property a non-issue. I was not, afterall, fighting for the custody of a child or a major asset. I temporarily adopted the view that most everything could be replaced. Everything was packed up in storage and when we calmed down a few months later, we methodically went through shared property and decided who would get what.

10) sold and destuffed as much of my property as possible
Apart from being immensely therapeutic, selling some of the items that were just mine lessened the cost of my move (supplies, gas, vehicle rentals).

11) separated all bank accounts
I actually didn't do this right away. Perhaps I should have. It was done eventually though.

12) made a list of I owed him, and what he owed me
We were both very poor and very much in debt at the time, but we had both paid 1000s of dollars to each other for various expenses over the years. I had paid more to him than he to me. I knew that I needed to be repaid to settle some of the debt I still held from the relationship, so I made a list. When things calmed down a little between us I spoke to him about the debts and we set a repayment plan in place. This plan was only possible because our break up stayed above board - and very friendly.

13) increased my income
I quickly took on additional jobs so that I could repair the financial damage of my relationship and our break up. I searched craigslist, asked my current employers and aggressively put my name in at every place I could think of that offered pay and flexible hours. I took on odd jobs, contract name it, I did it.

14) started my emergency fund
Yup, it took nearly being homeless and bankrupted by a relationship gone wrong for me to do - but that's when I start paying myself that 10% a pay cheque.

And eventually, I....

15) read up on personal finance - specifically for single ladies
Along with various "For Dummies" books about stock investing and value investing, I read "The Everything Guide to Personal Finance for Single Mothers". I am not a single mother, but it was the only version of the "Everything" personal finance series that I could get as an ebook from the New York Public Library. It might be the best thing I ever did. I had been given most of the financial advice made in the book at other times. I can't say I followed all the advice the book gave. What really change my life was the book's bottom line descriptions of poverty stats - that most desperately poor people are women (often widowed women). It is worth reading just for the wake up call. It also contains descriptions of how wealthy people manage their own finances (i.e. buy used, not new etc.).

16) started aggressively decreasing my debt and conservatively investing
This took a little longer for me to get rolling on that I thought it would. Eventually, I started taking a more active hand in lowering my debt and preparing for retirement.

How did I break up on a budget? In short, I ditched the apartment, cut costs and increased income as quickly as possible.

Have I recovered? Emotionally - yes....years ago. Financially - almost. It took me about 6 weeks to recover from the immediate costs of a the break up (moving, the many phone bills etc), in part because I immediately moved to reduce day to day and break up costs. It has taken me a few more years to recover from the debt acquired during the relationship...but that's a story for another time.

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