4 People, 1 City: How I Spend, Save and Splurge in Chicago

4 People, 1 City: How I Spend, Save and Splurge in Chicago

When you compare Chicago to other metropolises in America, life in the Windy City might seem pretty (financially) sweet.

After all, you’d be hard-pressed to ever spot the Midwestern city on a list of the priciest places to rent.

And last time we checked, a dinner of deep-dish pizza and craft beer wasn’t much of a budget-buster.

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But wander into the heart of town for some shopping along designer-store-studded Magnificent Mile or pony up for front-row seats at Wrigley Field, and you’ll be reminded just how easy it is to spend money in Chicago.

We’ve got the stats to prove it.

A recent LearnVest analysis uncovered that residents spend 8% more than the average American on shopping, 32% more on personal care, and a whopping 78% more on career and business expenses.

So how can savvy Chicagoans keep their spending in check—and their financial goals top of mind?

To see for ourselves, we asked four city dwellers to divulge their income, monthly expenses and saving patterns. Then we tapped Matt Shapiro, a CFP® with LearnVest Planning Services, to tell us how they're doing—and where there's room for a little big-city budgeting improvement.

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mayas_budget_breakdownThe Retirement-Focused Super Saver

Who: Maya Rodgers*, 31, a regional production planning manager in the food industry
Annual Income: $78,900, plus a 10% bonus

What Maya Says About Her Budget “I’m a retirement super saver—a skill my parents have encouraged me to cultivate over the years. Honestly, I think they’re afraid I’ll be single forever, so I will have to generate enough cash to take care of myself down the line.

Thankfully, being based in Chicago has been great for me financially, since the cost of living is lower than in other major cities. As a result, I've been able to buy my condo, as well as focus my saving efforts on retirement.

In addition to putting 15% of my paycheck into my 401(k)—and taking advantage of my company’s 5% match—I also put $5,000 into a traditional IRA each year, plus another $5,000 into a Roth IRA. In total, I have about $65,000 saved in the three accounts.

One area where I struggle, however, is my emergency savings. I’d like to have at least $10,000 in that fund, which would allow me to avoid charging unexpected expenses on my credit card. But I’m only halfway there, and not currently contributing to it.

My goal is to figure out where I can free up some cash to beef up this account. I could probably cut back on impulse spending—I can never get out of Target for less than $50—and perhaps call up my cable company to lower my bill.

There is one detail that could threaten my progress. I’m looking for a new job, and if I find one, my food bills could increase. At my current gig there’s a cafeteria that offers lots of great breakfast and lunch options—for free. Not that it’s a reason to stay at this job, but it’s definitely a perk that saves me a couple hundred bucks a month.”

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"The total contribution you're allowed to make to traditional and Roth IRAs each year is $5,500—yet she’s stashing away $10,000!"

What the CFP® Thinks “Overall, Maya’s doing really well. Her housing costs come to less than a third of her monthly take-home pay, which is a healthy percentage.

As for retirement, I commend Maya’s commitment to saving, but there is an issue she needs to address quickly. The total contribution you're allowed to make to traditional and Roth IRAs each year is $5,500—yet she’s stashing away $10,000!

Eventually, the IRS will get in touch with her, and she’ll have to pay taxes and penalties on the excess contributions. I’d recommend that she talk to an accountant immediately to remedy this situation.

Once that’s squared away, she can funnel the leftover $4,500—or $375 a month—to her emergency fund. Right now her $10,000 goal is reasonable, but ideally she'd keep saving until she hits $20,000, which is six months' worth of take-home pay.

After she meets that goal, she can consider putting the $4,500 into a brokerage account. That way, if she wants to earmark it for retirement, she can. But if another big financial goal pops up in the meantime—say, she gets married, or needs a new car—there's no withdrawal penalty.”

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Jimandsue_budget_breakdownThe Overextended Couple

Who: Jim Thompson*, 35, a risk consultant in the banking industry, and Sue Thompson*, 35, a publicist
Annual Income: $155,000 combined

What Jim Says About Their Budget “One of the big goals Sue and I have for this year is to up our net worth.

We’ve got about $100,000 saved in a 401(k), IRA, and emergency fund, but I’m worried this still doesn’t put us on track for retirement. I’d love to know how to expand our portfolio, and earn a better return on our investments.

Beyond that I think our spending habits could use some improvement. Each month we run a credit card balance between $1,000 and $3,000. I know we need to get to a point where we're canceling this out every month, but we have a lot of expenses that keep us from doing so.

That said, we aren't excessive when it comes to spending on non-essentials or food. We save by shopping at Costco—something Sue says wouldn't be as easy to do if she still lived in her hometown of New York. Fortunately, our Chicago apartment is big enough to house bulk purchases!

But our fixed costs—especially day care—are pretty high. However, our child care expenses are fairly standard when compared to other big cities across the U.S.

With little flexibility each month, we’re finding it tough to prioritize future goals, like saving for a home down payment and our 2-year-old son's college tuition."

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"A general rule of thumb is, by 35, you should have the equivalent of one year's salary saved for retirement."

What the CFP® Thinks “The first order of business is to come up with a plan to get Jim and Sue in the black again. What worries me about credit card debt is that it’s typically a sign that someone isn’t really following a budget.

So I’d challenge this couple to really evaluate their numbers, because I suspect they're underestimating how much they truly spend. For example, $40 to $60 a month on kids' expenses and $50 for beauty and clothing seem low to me.

To find out for sure, they can try this exercise: Go cash-only for a month or two. Commit to a total of $600 for flex spending—since that’s what they estimate they’re spending now—and take it out of the ATM at the start of the month to spend for the whole month. I think they may find that they run out midmonth—and that this isn’t a realistic budget.

After they get a better handle on their numbers, they should be able to stop running up a big credit card bill. When you know how much you really spend in a given category, you're less likely to overspend.

Next, they need a plan for digging out of debt. I generally tell my clients to figure out a way to do so in five years or less. So if the Thompsons have, say, a $2,000 balance on a card with a 12% interest rate, they’d only need to pay $44 a month to zero out their debt in five years. It'd be even better if they could locate an extra $180 after rejiggering their budget, allowing them to be debt-free within a year.

Now for retirement savings: I agree they need to increase their nest egg. A general rule of thumb is, by 35, you should have the equivalent of one year's salary saved for retirement, which would be $150,000 in their case.

Once they’re out of debt, they should funnel that payment straight into their 401(k)s, which is the best place for their money to grow. I'd discourage them from investing in individual stocks—it's too risky if you don't know the ins and outs of trading. I'd rather see them pick a target-date fund, which is a mutual fund that automatically shifts its combination of stocks, bonds and cash based on a specific time-frame, such as your year of retirement.

As some of their bigger expenses go away—like day care—they should immediately reallocate this money to retirement, too, and keep their down payment and college savings goals on the back burner for a while.

Once they're 59.5 and can take qualified distributions from their 401(k)s, they may realize that they have more than enough for themselves, so they can always withdraw cash, penalty-free, to help their kid repay a student loan."

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sams_budget_breakdownThe Divorcée in Transition

Who: Sam Logan*, 40, a pediatric anesthesiologist
Annual Income: About $160,000

What Sam Says About Her Budget “I’m recently divorced, which means my financial picture is changing—a lot.

In addition to my part-time salary, I’ll soon be receiving $6,000 a month for child support for my three kids, and $3,750 for maintenance (formerly known as alimony) for 55 months—and I want to make sure I’m saving appropriately.

While I have about $50,000 in my emergency fund now, I'm not currently contributing to it, so I want to prioritize beefing that up. I’m also maxing out my 401(k) each year, but I’m not sure it’ll be enough to comfortably retire.

And I've been toying with the idea of moving to a smaller house in a different school district, so I'd like to put aside some cash for a down payment.

I'd like to stay in the Chicago area, where there are a lot of flexible medical job opportunities. If we lived in a more rural part of the state, I'd likely be forced to work full-time and be on-call—which isn't the lifestyle I want.

When I was married, my husband was the one who kept us on track financially. Our divorce has been friendly, but I don’t want to continue turning to him for advice.

Entering this new life phase has inspired me to sort through my finances to ensure I’m being smart and remain debt-free. I’ve always said that while I don’t need to be wealthy, I’d like enough money not to have to worry about it.”

RELATED: What Would You Give Up … to Be Debt-Free?

"Like Jim and Sue, I wonder if Sam is underestimating her spending. Considering she’s a busy, working mom, spending $300 each month on restaurants and takeout may not be actual."

What the CFP® Thinks “I think it’s great that Sam is really focusing on her budget—especially during this transition.

When you have specific goals and a solid framework, it’s so much easier to come up with a feasible plan for how to spend and save—whether you're bringing in $20,000 a month, like Sam, or $2,000.

Like Jim and Sue, I wonder if Sam is underestimating her spending. Considering she’s a busy, working mom, it seems like spending $300 each month on restaurants and takeout may not be actual. She should comb through her credit and debit card statements to learn if that number—and any others—should be higher.

Even after adjustments are made, Sam should have enough to funnel $5,000 to savings each month—in addition to every penny of her maintenance check. That way, she won’t get used to spending it, or miss it when it expires. She can use this cash influx to meet her home down payment goal or fund her kids' college funds, while preserving her $50,000 emergency fund.

I'd also like to see her ramp up her retirement savings. At LearnVest, we recommend setting an income replacement goal equal to about 85% of your pre-retirement salary.

So while it's great Sam is maxing out a 401(k), if she wants to bring in $140,000 or so in retirement, she'll need to save about $3 million in the next 20 or 30 years, assuming a 5% return. To make sure she meets that goal, Sam should aim to invest another $4,000 a month in a brokerage account.

I realize we might be getting close to allocating every cent of Sam’s income. If things start to feel tight, she may need to reassess the necessity of some of her higher-cost budgeting items, like kids' expenses. I'd challenge her to find creative ways to scale back on clothes and extracurriculars in order to prioritize her savings goals.

In the end, Sam's doing great. She has a lot to work with, and I'm confident she'll reach her goals."

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*Names have been changed.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the individuals interviewed or quoted in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.

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