Christopher Ming's Blog

Introduction

Skip the foreplay, and get right to the lode like a one-pump-chump:

What’s the magic number?

The thought pervades skulls of anyone with the itch to head west. It’s not the first to bud, not while you’re California Dreaming in upstate New York or Kalamazoo, Michigan. Surfing, or California Gurls carves that notch in the bed post. But the question lurks in the darkness like a venereal disease on a piece of OPP. It’s the first obstacle, the camouflaged, muffler-scraping speed bump standing between you and your life’s ambitions.

“How much should I bank before I move to Los Angeles?”

If you’re looking for a magic number, you can find it. It’s a click away; you’ll pull up Search Results 1-10,000, each page with listing from hocus to pocus.

“Expect to pay $1,000 per month per person… minimum,” one source says. Or that you’ll need $7,000 to get set-up in Los Angeles. Even $20,000 is a paltry bag of loot for this cruel, hard town: only the first $10,000 is for trying to make it in Los Angeles.

The other $10,000?

For re-rebuilding your life when you fail.

Who’s got the time to put together $20,000 – not for a down payment on a home, but to relocate to a crappy loft or one bedroom apartment? What recent graduate up to their nostrils in student loans, consumer debt, and the nasty coke habit they picked up in Law School has the means to scrape up two stacks?

The figure – $20,000 – isn’t even the highest number suggested, but any newly minted graduated with $35,000 banked obviously knows something the rest of us don’t.

People asking the “magic number” question (aka “How much should I bank?”) are searching for glass knives, but there’s no clear cut answer. This post will address the question, but it’s only the tip of the iceberg. Beneath the surface, floating like a tectonic of earth and ice, is the real issue at hand: “How badly do you want it?”

Calculations

Disclaimer: The author is not a personal finance expert. Anything pertaining to finances written here is based solely on personal experience, and should be executed at your own risk.

No passes or loading or Hindu Shuffles required to find your magic number – just calculation. Below is the lay:

1. Calculate your expenses per month. Start by creating a balance sheet: shuffle Revenues to the left, and electric slide Expenses to the right. For the purposes of this example, ignore Revenues completely, and focus all your attention on Expenses.
   Gather all those recurring expenses: rent, monthly student loans payments, health insurance, car insurance, server costs, cell phone bill, gym membership, and any other expense that comes in at a regular amount in a regular period.
2. Next budget regularly incurred expenses of indefinite increments. Gas is one example: you know the pumps’ will cause you to lose serious hit points throughout the month, but cumulative carnage is unknown. Miscellaneous expenses fall in this category, which can be broken to subcategories: Groceries, Alcohol, Dining Out, Clothes, etc. Creating a separate spread sheet to record these expenses, then referring to it in the Balance Sheet keeps the data organized.
3. The final category listed with Expenses is Savings. Why is Savings an Expense? Because your wise, financially capable dome adheres to the “pay-yourself-first” mentality like a cheap Internet banner. Treating savings as an expense automates the saving process, and forces you to save even when you don’t necessarily have the funds to do so. Too often, saving with the money left over post-Bill Pay results in goose eggs instead of a nest egg.

Consider contributing to a few savings accounts on a monthly basis:  the first, an emergency fund for those minor problems that require you to throw a little money at it to go away (car maintenance, exploding pipes, bail money, etc.) Second, start contributing to an IRA as early as possible. A discussion on the powers of an early start and compounding is far beyond the scope of this post, but know this: it’s huge. There are two kinds of IRA’s: Traditional and Roth. For an in-depth comparison, see Get Rich Slowly’s post.

Carry-the-one addition (or a =SUM function in a spreadsheet) quickly determines total expenses per month. Multiply this figure by three, then add it to your expected move-out costs and start-up costs (see below) to calculate your magic number: the bottom-of-the-barrel, asphalt scraping, bare minimum amount of quiche baking in the oven before moving to Los Angeles.

Start-Up Costs

These are the costs any new resident or Los Angeles transplant will incur to make it big in Hollywood. Referring to the physical goods mentioned below as necessities would be a stretch (they’re not) but they do go a long way towards living comfortably. The list moves from inelastic (you’ll almost definitely incur these costs) to elastic (can get away with not purchasing) costs:

1. Security Deposit and first month’s rent
2. Broker’s fee (if you work through a broker)
3. Food – you’ll eat out more if you don’t have any place to store groceries
4. Gas – double the dollars allocated; there’s a lot of driving to do the first month
5. Furniture – start with something as simple as one air bed, and a fold-up table and chair. As you settle in, you can acquire other comforts: lamps, dish sets, wine glasses, a kitchen table, a television set, etc.
6. Pots and pans

Be willing and eager to hunt for the elastic items on Craigslist. You’re not setting up shop in your dream home. You are not taking tips from TLC or HGTV. Martha Stewart is not your hero. You’re hustling and struggling and sculpting without stone, which means you’ll take what get (“and like it, you bet!”) It’ll get you by the first few months, at which point, if you’re flowing like the carpool lane through gridlock, feel free to upgrade.

Cutting Costs

In the early stages, it’s far easier to work on lowering expenses than increasing revenue. The consequences are compounded when income is irregular at best, zero at the worst. Still, our thoughts usually turn to making more as the solution, instead of spending less. Before moving, cut this mentality out of your mind. Create a strategy, or battle plan if you will, of your actions to cut down on those expenses, temporarily even, at least until you have some income:

1. Keep the miscellaneous expense costs to a minimum. Refrain from expensive habits: dining out, drinking, drugs, or buying non-essentials (clothes, shoes, gear and gadgets.) Every month you concentrate on paying the rent and sustaining your body is another month to do what you set out to do.
2. Keep gas costs down. You’ll drive everywhere in Los Angeles, but that doesn’t mean there aren’t methods to save gas. If the grocery store or the beach is close by (set a miles distance e.g. 3 miles, 5 miles) try biking or skateboarding there instead of taking the car. Avoid rush hour like a bad Jackie Chan movie; your car will idle for two hours with nothing to show for it but 100 yards of pavement and half a tank of gas.  Go to work earlier and leave later – schlep over to a café and read for an hour before heading home, after traffic lightens.
3. Temporarily reduce your contributions to your student loans. If things get real hard up, defer the loans for a year.
4. Temporarily cut out your health insurance coverage (not recommended, and should only be implemented as a last resort.)
5. Cut back on savings. If flies directly in the face of the “pay-yourself-first” mentality, but you may need to do it temporarily in the beginning. As soon as you think you’re able to, start saving again.

Some ideas to cut down on start-up costs:

1. You might not be set-up with a place when first touching down in Los Angeles, since it’s difficult to find an apartment without being in the area. Do not assume, however, that subletting (which locks you down for a month, plus your security deposit) is the only option. Instead, you can:
   1. Crash with a friend (or a friend of a friend) for a few days
   2. Couchsurf
   3. Stay at a hostel
   4. Camp at a state beach or park
   5. Boondock at Wal-Mart’s (not the most comfortable or safest, but feasible)

All the while, aggressively apartment hunting – stealing Internet if necessary, but doing what it takes to find a place to settle.

1. Steal Internet. Offer to pay your neighbors $20 per month for their password. Or find a nearby B&N or a Panera and use the Internet there.
2. Buy only the essentials when you arrive: air mattress, pots and pans, food. Other than those items, Craigslist everything you can, a little at a time.

More Information?

The articles on personal finance are wide and varied and more complete than could ever be possibly covered here. A few excellent places to start are:

Ramit Sethi’s I Will Teach You to be Rich

J.D. Roth’s Get Rich Slowly

Tim Ferris’ Investment Series – start with Rethinking Investing, and work your way through the content

Conclusion

Examining your financial situation is a crucial step for going coast-to-coast, but there’s nothing magical about that “magic number.” Money in the bank is just money in the bank; the real magic happens when you ask yourself: How bad do you want it?

Shift the lens from the distraction (“Do I have enough money?”) to the real issue (“What do I really want?”) opens eyes and doors. You’ll realize it’s less about finances and more about comfort level. To some, these cutbacks may seem absurd, impossible, or damned dangerous: “What do you mean, boondock at Wal-Mart’s? You mean, sleep in my car in the parking lot? Don’t be ridiculous.” If it does seem ridiculous, don’t do it.

Far more ridiculous, however, is living life without a passion. Or worse, having a passion but not willing to make the sacrifices to pursue it. If you want it bad enough, you’ll make it on pennies. If you lack the focus or the drive, all the money in the bank won’t get you there.

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Posted under: xc2la
by Chris
Tagged: finances, Los Angeles
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