Making budget work with high rent
A huge portion of my income goes toward rent, and I already have a roommate and am not able to move right now. How can I manage other financial priorities, like paying off debt, with such high housing costs?
For some, this question might summon a vision of 20-somethings in New York or San Francisco eating avocado toast in sleek, outrageously priced apartments. But not all cashstrapped renters live in major cities. And not all city dwellers are leading lavish lifestyles.
In 2015, almost half of all U.S. renters were cost-burdened, meaning they spent more than 30 percent of their income on housing, according to the Joint Center for Housing Studies of Harvard University. That’s largely because earnings haven’t grown at the same pace as housing costs. In New York, for instance, renters’ median household incomes rose 6.6 percent from 2005 to 2015, while median gross rents shot up 18.3 percent, according to the NYU Furman Center.
Try these budgeting strategies so you can pay the rent, then make room to build savings and reduce debt:
First comes saving
The 50/30/20 budget recommends spending no more than 50 percent of your earnings on necessities like housing, food and transportation; 30 percent on wants; and 20 percent on debt repayment and savings. But when you enter your information into a budget calculator, rent might take up nearly the entire “necessities” category. That means you’ll likely have to cut back on your “wants.”
Saving now means building a cushion that prevents you from taking on more debt and that can help you afford to buy a place someday. To start, make sure you’ve got at least $500 in a rainy-day fund.
Next up is saving for retirement. If your employer offers a match on 401(k) contributions designate at least enough to capture the match.
Slashing debt
Once emergency and retirement savings are on track, you’re ready to pay extra toward debt.
One way is to prioritize what to pay down based on interest rate. Aim to eliminate credit card balances first, which often have the highest rates. If you still have money left over, add to your rainy-day fund so it covers three to six months of essential expenses, and increase retirement savings.
Cut other expenses
Sure, you can try to cut back on boozy brunches or buying books to free up some cash. But limiting larger-ticket items, such as car-related costs, might get you further, says Eric Tyson, author of “Personal Finance for Dummies.”
The average loan payment for a new car was $509 a month in the first quarter of 2017, according to credit reporting agency Experian. You’ll save money by buying used, and by shopping around for cheaper car insurance. Often, larger cities have both pricey rents and solid public transportation. If you can, take advantage of the latter by delaying car ownership.
Re-evaluate your city
Finally, think long term. Rent doesn’t have to be the expense you organize everything around forever. Every year, take stock of whether your location makes sense for your career, says Jessica Landis at Janney Montgomery Scott, a financial services firm. You might live in a place that has lots of opportunities for professional advancement.
Chili’s Grill & Bar is going on a diet to fatten its sales — just one of the strategies casual-dining chains are using to reverse a slowdown in growth.
Chili’s is slashing the number of items on its menu by 40 percent, to 75 from 125, to focus on its core offerings, such as burgers, fajitas and baby back ribs. The chain is trying the leaner menu in hopes of stemming a sales drop.
“We had to take control of what we could control,” Chili’s President Kelli Valade said. “We had potentially lost our way.”
The entire sector of publicly held, mid-priced U.S. restaurant chains seems to be struggling to find its way back to growth. The brands face stagnant or slumping sales and shifts in consumers’ dining habits.
They include not only Chili’s, a division of Brinker International Inc., but also DineEquity Inc., which owns Applebee’s and IHOP; BJ’s Restaurants Inc.; and Ruby Tuesday Inc.
Cheesecake Factory Inc., a more upscale member of the casual-dining group, also has seen its sales growth stall for the first time in eight years.
“The past 24 months have been extraordinarily difficult,” Applebee’s President John Cywinski told Wall Street analysts last month.
Americans still love eating out. Consumer spending at restaurants and other food vendors, including beverage sales, stood at an inflation-adjusted annual rate of $605 billion in the second quarter, up 4 percent from $584 billion two years earlier, according to the U.S. Commerce Department’s Bureau of Economic Analysis.
But much of that growth has been outside the casual-dining sector in areas such as inexpensive fast-food chains, “fast casual” outlets such as Chipotle Mexican Grill and Panera Bread, takeout and delivery services, and independent restaurants that deliver a higher perceived value, analysts said.
“We’ve seen a lot of growth in the fast-casual segment,” said Victor Fernandez of TDn2K, a firm that tracks the restaurant industry. “It’s in the middle, the casual-dining area, where that market share is coming from.”
That has caused problems for the casual-dining chains.
Brinker’s stock has tumbled 33 percent this year, while the benchmark Standard & Poor’s 500 index has gained 11.6 percent. The stock of DineEquity has plunged 47 percent, BJ’s Restaurants is down 25 percent and Ruby Tuesday has fallen 31 percent.
In the first six months of this year, Applebee’s same-store sales dropped 7 percent from a year earlier, and IHOP’s fell 2.1 percent.
DineEquity tapped new leadership to turn around its chains. Stephen Joyce, former chief executive of Choice Hotels International Inc., this month took over as CEO of DineEquity, replacing Julia Stewart, who resigned March 1. Stewart previously headed IHOP and merged that company with Applebee’s in 2007 to create DineEquity.
Ruby Tuesday, a chain mostly in Eastern states, said its same-store sales fell 3.1 percent in its fiscal year that ended June 6. The Tennessee firm also is closing some restaurants and said last month it was reviewing “strategic alternatives” that included a possible sale of the company.
Same-store sales at Cheesecake Factory, based in Calabasas Hills, Calif., fell 0.5 percent in the second quarter compared with a year earlier.
It was the company’s first quarterly decline in the measure since 2009.
For Chili’s, a key problem was that its menu had become bloated as the chain — in its own words — “chased consumer trends, expanded the menu and tried to be all things to all guests” but instead became saddled with a “fuzzy food reputation.”
The result: Chili’s U.S. samestore sales fell 2 percent in its fiscal year that ended June 28.
By shrinking the menu, “we’re going back to what we are known for,” Valade said. Chili’s said it also planned to “invest millions” to improve the food quality of its remaining menu items.