How Much Can You Spend on Rent Making $1 Million a Year in Manhattan?

If you're earning $1 million a year, your priorities shift significantly. Instead of worrying about rent, you might consider diversifying your investments to include Treasury bills (T-bills), precious metals, and more speculative investments. This diversified approach can help you protect your wealth in case of a financial downturn, such as a global financial crisis or a divorce.

Financial Planning and Tax Considerations

In the tax bracket you belong to, you should aim to allocate around $400,000 to $500,000 for other expenses. If your income comes from your own business, this can be even more.

Banks often advise spending up to 1/3 of your income on housing expenses. However, personal finance experts and many financial advisors suggest spending up to 1/4 of your income on housing.

Wall Street and Real Estate Rules

A common rule adopted by Wall Street professionals is the 1/40th rule. According to this rule, your rent should cost you only 1/40th of your pre-tax salary per month. For someone earning $1 million a year, this translates to a maximum rent of $3,600 per month or $43,200 per year. This leaves you with approximately $50,000 after deductions for miscellaneous expenses per year, or around $4,166 per month for other bills, food, and miscellaneous expenses.

Of course, the final rent amount you choose should depend on your specific spending habits and savings goals. A cheaper, more livable option might be closer to $1,500 per month, especially if you're in a well-selected area in Manhattan.

Real Estate Market in Manhattan

The real estate market in Manhattan can be competitive, but there are options. For just $15,000 per month, you can rent a three-bedroom apartment that ranges from 1,200 to 1,500 square feet. In this price range, you'll find more options compared to a one-bedroom apartment that costs about $3,000 per month but is only 800 square feet.

Key Takeaways:

Assess your investment options before focusing on housing. Allocate a significant portion of your income to diverse investments for financial security. Consider the 1/40th rule for determining rent based on your pre-tax income. Evaluate your spending habits and prioritize your savings goals when choosing a rental amount.