Author Topic: The real cost of living: $150K minimum  (Read 13631 times)

kolorado

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The real cost of living: $150K minimum
« on: April 11, 2012, 03:24:02 PM »

Adventine

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Re: The real cost of living: $150K minimum
« Reply #1 on: April 11, 2012, 06:02:39 PM »
What. The. Fuck.

grantmeaname

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Re: The real cost of living: $150K minimum
« Reply #2 on: April 11, 2012, 07:55:05 PM »
This is the same site that "proved" that eating out is cheaper than eating in... In fact, said article came up in the recommended reads after the article.

Mrs MM

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Re: The real cost of living: $150K minimum
« Reply #3 on: April 11, 2012, 08:21:09 PM »
I love articles like that one! Thanks for posting it here, as it is exactly why this particular topic exists in the forum :-)

I'm actually collecting as many as possible and working on post about them for the near future. I think the key lies in the fact that people talk about affording "the basics". The definition of "the basics" is what has grown in society, as opposed to the actual cost of living.

So articles like this are really measuring the brainwashing level of the general public, and not anything at all about the cost of living in the US. It would be entirely possible to find a different group of people to survey who feel that "the basics" cost about $12-15k for a small family (I'd be in that group, since I feel my current spending is way above a basic lifestyle), and others who would say they are over $500,000 - perhaps even several million per year!

EDIT: THIS WAS ACTUALLY WRITTEN BY MMM LOGGED IN AS MRS. MM (it seems we occasionally get confused - sorry!)... - Mrs. MM
« Last Edit: April 14, 2012, 10:53:44 AM by Mrs MM »

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #4 on: April 12, 2012, 09:03:50 AM »
It's also a mental thing - they don't save any money, they spend it all, so when they get a question like "I can afford the basics + extras" vs. "I can afford the basics + extras + save a little" they know they aren't saving, so they think they can't, so they think their income isn't enough.  Rather if they stopped wasting money, they could afford everything + extras + save.  They just choose not to, then think they can't when forced to answer if they could.
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velocistar237

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Re: The real cost of living: $150K minimum
« Reply #5 on: April 12, 2012, 09:24:26 AM »
Here's one scenario that pops into my mind.

I have some friends who make $120K/year, they both work, and they have one child. They live frugally. They own one Toyota Yaris free and clear. Right now, they save $1K/month, but if they had a second child, their day care costs would double, and they wouldn't be able to save anything. Because their salaries are equal, they would come out a little behind if one of them stopped working.

I can see how $120K could be hard for some families.

But $150K? On average? And $350K in NYC??? That's ridiculous.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #6 on: April 12, 2012, 03:59:44 PM »

Here's one scenario that pops into my mind.

I have some friends who make $120K/year, they both work, and they have one child. They live frugally. They own one Toyota Yaris free and clear. Right now, they save $1K/month, but if they had a second child, their day care costs would double, and they wouldn't be able to save anything. Because their salaries are equal, they would come out a little behind if one of them stopped working.

I can see how $120K could be hard for some families.

But $150K? On average? And $350K in NYC??? That's ridiculous.


I don't see how they can only save 12k out of 120k per year if they are actually living frugally.  Even in cities with a huge cost of living, 108k expenses is very high.  I think they have to be living less frugally than you think.
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velocistar237

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Re: The real cost of living: $150K minimum
« Reply #7 on: April 12, 2012, 05:34:09 PM »
I think they have to be living less frugally than you think.

They wanted to know whether they could afford a house and how much, so they shared their entire budget with me. If you count student loans as savings, their savings would be around $1800/month (27% savings rate). They could have reduced their food bill by $150 and their phone by $50, and maybe their rent by $100. That was about it, unless they moved somewhere with a cheaper cost of living. Rent, day care, and tithe equaled half of their net income.

Grigory

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Re: The real cost of living: $150K minimum
« Reply #8 on: April 13, 2012, 01:01:44 AM »
Rent, day care, and tithe equaled half of their net income.
I think I found the problem...

shedinator

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Re: The real cost of living: $150K minimum
« Reply #9 on: April 13, 2012, 05:15:40 AM »
Rent, day care, and tithe equaled half of their net income.
I think I found the problem...

Tithe (or some other form of routinized giving) is a non-negotiable for many people. I don't think we need to begin questioning its mustachian-ness. It would be a shame to see such a nice community get divided by religion... like most other communities already have.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #10 on: April 13, 2012, 06:59:26 AM »
MMM has addressed tithing in a reader case study, and I think his response is adequate. We don't need to question it as a negative, but nor should someone get offended if it is questioned, because it's a legitimate thing to think about - tithe now versus save more so you can donate more by being ER.

Rent, day care, and tithe equaled half of their net income.

That doesn't mean they are living frugally, it means their rent and day care is too expensive. It's eating up 60k (half of their 120k)? 

That's shocking and is wrong, or, if correct, needs to change.

Either way, MMM can live on 30k-ish. Many other Mustachian/frugal families can live on that or a bit more. I just can't buy them needing 108k while living frugally.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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velocistar237

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Re: The real cost of living: $150K minimum
« Reply #11 on: April 13, 2012, 01:15:06 PM »
That doesn't mean they are living frugally, it means their rent and day care is too expensive. It's eating up 60k (half of their 120k)?

Yes, it is too expensive (half of net income, or $43K). Along the same spirit as tithe, you can decide for yourself whether someone can be frugal after having a child before retirement or while staying in a high cost-of-living area. If you subtract student loans, day care, and tithe, my friends' annual spending is $32K (I remembered wrong; loans+savings is $2K/month). This is below MMM's spending level, since he doesn't include his opportunity cost for housing. Still, they know there is room for improvement, and they've made a good plan.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #12 on: April 13, 2012, 03:52:30 PM »

Yes, it is too expensive (half of net income, or $43K).

Their net is 86k on 120k salary?  28% effective tax rate?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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sol

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Re: The real cost of living: $150K minimum
« Reply #13 on: April 13, 2012, 04:09:21 PM »

Yes, it is too expensive (half of net income, or $43K).

Their net is 86k on 120k salary?  28% effective tax rate?

More likely an 18 percent effective rate plus the tithe.

Guitarist

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Re: The real cost of living: $150K minimum
« Reply #14 on: April 13, 2012, 10:07:18 PM »
One parent quits their job to remove daycare. This reduces their income which will reduce the amount they feel necessary to tithe. Then they move to lower their rent.

Tithing shouldn't be the first thing they get rid of.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #15 on: April 15, 2012, 10:02:31 AM »

Yes, it is too expensive (half of net income, or $43K).

Their net is 86k on 120k salary?  28% effective tax rate?

More likely an 18 percent effective rate plus the tithe.

No, because he quoted the tithe as one of the three things eating up half of their net.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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velocistar237

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Re: The real cost of living: $150K minimum
« Reply #16 on: April 15, 2012, 01:55:46 PM »
One parent quits their job to remove daycare. This reduces their income which will reduce the amount they feel necessary to tithe.

This is their plan. Unfortunately, their plan is also to buy a house, which I tried pretty hard to talk them out of.


Yes, it is too expensive (half of net income, or $43K).

Their net is 86k on 120k salary?  28% effective tax rate?

Okay, okay, my story is falling apart. I paid attention to the expense side but not as much on the pre-tax deductions. I'm not going to go through the trouble to calculate percentages, but there is health insurance and a decent amount of retirement savings.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #17 on: April 15, 2012, 02:10:49 PM »
Okay, okay, my story is falling apart. I paid attention to the expense side but not as much on the pre-tax deductions. I'm not going to go through the trouble to calculate percentages, but there is health insurance and a decent amount of retirement savings.

Okay, not trying to grill you, I just don't think that someone living "frugally" would struggle to barely save 1k/mo on 120k gross.  There's an issue somewhere.  It's not a big deal, just curious if we could figure out where that money leak was (and no, tithing is not it.)

Also, I watched Toy Story 3 (for a second time) last night and finally understood your username!  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

velocistar237

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Re: The real cost of living: $150K minimum
« Reply #18 on: April 15, 2012, 02:19:24 PM »
Okay, not trying to grill you, I just don't think that someone living "frugally" would struggle to barely save 1k/mo on 120k gross.  There's an issue somewhere.  It's not a big deal, just curious if we could figure out where that money leak was (and no, tithing is not it.)

I'm willing to take the trouble to put up details, but at this point, I want to ask for permission. I know it's anonymous, but I'd feel more comfortable doing that first. Hopefully, they'll be up for it.

Also, I watched Toy Story 3 (for a second time) last night and finally understood your username!  :D

And now you can see it next to a completely unrelated Thomas Magnum photo!

menorman

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Re: The real cost of living: $150K minimum
« Reply #19 on: April 17, 2012, 09:23:02 PM »
I think they have to be living less frugally than you think.

They wanted to know whether they could afford a house and how much, so they shared their entire budget with me. If you count student loans as savings, their savings would be around $1800/month (27% savings rate). They could have reduced their food bill by $150 and their phone by $50, and maybe their rent by $100. That was about it, unless they moved somewhere with a cheaper cost of living. Rent, day care, and tithe equaled half of their net income.
In their search for houses and how much they can "afford", point them through The Millionaire Next Door, where it's suggested that one carry a loan of no more than 2x annual salary if they want to remain in a good position financially. I get the feeling that that advice falls at odds with accepted financial "wisdom" which recommends 30% of gross on housing, but just because everyone else in their income range spends ~$37k/year on housing costs just to make it doesn't mean your friends have to. A total mortgage of $240k is their limit, which should still buy a decent house in most parts of the country in this day and age.

velocistar237

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Re: The real cost of living: $150K minimum
« Reply #20 on: April 18, 2012, 02:48:06 PM »
In their search for houses and how much they can "afford", point them through The Millionaire Next Door, where it's suggested that one carry a loan of no more than 2x annual salary if they want to remain in a good position financially.

This is what I would recommend, but those opportunities are so rare in this area. We got pretty close, but only because the seller's agent was in the same office as our agent, so we got a foot in the door and put in an offer before the property was on the market.

Okay, not trying to grill you, I just don't think that someone living "frugally" would struggle to barely save 1k/mo on 120k gross.  There's an issue somewhere.  It's not a big deal, just curious if we could figure out where that money leak was (and no, tithing is not it.)

I got their permission to post a more detailed budget, so I'll do that in the next few days.

Also, I watched Toy Story 3 (for a second time) last night and finally understood your username!  :D

It's my daughter's favorite movie. She is 3, and I've seen it maybe ten times (no more than 1/3rd of it at a time, so that's a lot of days). I have changed my avatar to something that matches the name better.

menorman

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Re: The real cost of living: $150K minimum
« Reply #21 on: April 18, 2012, 08:04:58 PM »
In their search for houses and how much they can "afford", point them through The Millionaire Next Door, where it's suggested that one carry a loan of no more than 2x annual salary if they want to remain in a good position financially.

This is what I would recommend, but those opportunities are so rare in this area. We got pretty close, but only because the seller's agent was in the same office as our agent, so we got a foot in the door and put in an offer before the property was on the market.

Well, it doesn't say value of house, it says the loan amount that is taken out. In other words, someone making $125k/year who wants to buy a $400k house needs to save $150k to put down first. However, a $300k house needs only $50k down first, which means getting the funds are ready in 1/3 of the time. With that being said, I personally would modify the formula to be 2.5x annual salary, which I'm sure can open up options to look at. I'd imagine that the differences between a $300k and $400k house are much smaller and less important than the differences between a $100k house and a $200k house. Also, one may find that the more expensive house is much harder to modify to be more Mustachian in the energy using categories. Big open rooms, large garage, National Park-sized lawn to care for all can be counterproductive, especially if ER is the goal, not just FI.

GregK

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Re: The real cost of living: $150K minimum
« Reply #22 on: April 27, 2012, 09:38:45 AM »
Okay, okay, my story is falling apart. I paid attention to the expense side but not as much on the pre-tax deductions. I'm not going to go through the trouble to calculate percentages, but there is health insurance and a decent amount of retirement savings.

Wait... are they saving $1k/month plus what they're putting into retirement savings? If that's the case, then this whole argument is futile! They're probably doing a fine job of being frugal. Guess we'll see once we get the detailed #s :-)

gecko10x

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Re: The real cost of living: $150K minimum
« Reply #23 on: April 27, 2012, 10:34:48 AM »
I'm interested to see the full numbers from this couple, as I can sympathize. Pre MMM (like 2 weeks ago), I felt like we were a typical american family with a good wage, living fairly frugally but still not having much money at the end of the month. We make $75k/yr, which I think should equate to a pretty cushy life, but it just seems to not be enough!

Since finding MMM, my eyes have been opened a bit. We have far too much debt to get us to FI, and we need to cut our expenses more (primarily auto). Here is our basic financial picture:
Family: Married, 2 kids (4 and 2). I have a desk job, wife stays at home with kids, but has a business on the side (just at break-even), and recently started working part-time for my father

Income: ~ $75k last year. Wife should start bringing a small amount home this year - maybe $1-200/mo, plus mine went up about 5%.

Debts: We have some major debt obligations: leased (Yeah, I know) 2010 CX-9 @ $411/mo (1yr left), 2008 VW rabbit payment @ $293/mo ($7500 left on loan, so I have about $2k in equity), student loans ($40k) @ $240/mo, closing on a new house in 1 month- $200k mtg @ $942/mo (5% equity)

Expenses: With the new house, we will be spending pretty much everything that's coming in aside from my 4% 401k contribution.

I am hoping that with the sale of our current house and my wife's income we will be able to find some way to pay off the VW by the time the CX-9 lease runs out. That would give us the cash flow to pay off a more fuel-efficient car for her in 3yrs. Then we'd be pretty set with a good car for her & the kids (plus work travel for her), and a work car for me, both paid off.

arebelspy

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Re: The real cost of living: $150K minimum
« Reply #24 on: April 27, 2012, 03:36:28 PM »
Welcome!

Glad to hear MMM has opened your eyes to some new possibilities!  :)

Don't hesitate to start your own thread if you have any questions or anything.

I'm interested to see the full numbers from this couple, as I can sympathize ... We make $75k/yr, which I think should equate to a pretty cushy life, but it just seems to not be enough!


There's a world of difference between making 75k and 120k.  75k should definitely lead to a cushy life in addition to saving quite a bit of it (it's 50% more than the median American household, and don't you feel like the median household has it pretty cushy?) .  120k should just make it so your savings rate is easily 60%+ without trying that hard.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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menorman

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Re: The real cost of living: $150K minimum
« Reply #25 on: April 29, 2012, 06:02:24 PM »
I'm interested to see the full numbers from this couple, as I can sympathize. Pre MMM (like 2 weeks ago), I felt like we were a typical american family with a good wage, living fairly frugally but still not having much money at the end of the month. We make $75k/yr, which I think should equate to a pretty cushy life, but it just seems to not be enough!

Since finding MMM, my eyes have been opened a bit. We have far too much debt to get us to FI, and we need to cut our expenses more (primarily auto). Here is our basic financial picture:
Family: Married, 2 kids (4 and 2). I have a desk job, wife stays at home with kids, but has a business on the side (just at break-even), and recently started working part-time for my father

Income: ~ $75k last year. Wife should start bringing a small amount home this year - maybe $1-200/mo, plus mine went up about 5%.

Debts: We have some major debt obligations: leased (Yeah, I know) 2010 CX-9 @ $411/mo (1yr left), 2008 VW rabbit payment @ $293/mo ($7500 left on loan, so I have about $2k in equity), student loans ($40k) @ $240/mo, closing on a new house in 1 month- $200k mtg @ $942/mo (5% equity)

Expenses: With the new house, we will be spending pretty much everything that's coming in aside from my 4% 401k contribution.

I am hoping that with the sale of our current house and my wife's income we will be able to find some way to pay off the VW by the time the CX-9 lease runs out. That would give us the cash flow to pay off a more fuel-efficient car for her in 3yrs. Then we'd be pretty set with a good car for her & the kids (plus work travel for her), and a work car for me, both paid off.
Work car?

grantmeaname

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Re: The real cost of living: $150K minimum
« Reply #26 on: April 29, 2012, 07:41:03 PM »
I interpreted that as "car to get to work", not "car provided by work".

gecko10x

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Re: The real cost of living: $150K minimum
« Reply #27 on: April 30, 2012, 07:00:41 AM »
I interpreted that as "car to get to work", not "car provided by work".

Correct. Sorry for the confusion.

I am planning to attempt to bike to work after we move, but it will still be 10mi on very hilly terrain, and I don't currently own a bike.

SpendyMcSpend

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Re: The real cost of living: $150K minimum
« Reply #28 on: May 09, 2012, 05:20:51 PM »
I agree with most of this, but I do have to say that a couple of these articles make decent points:

"Consider, for example, the tab for the same assortment of ground beef, tuna, milk, eggs, margarine, potatoes, bananas, bread, orange juice, coffee, sugar and cereal: In Twin Falls, Idaho, $23.41. In New York City in December of 2010, you would have to shell out 72 percent more, $40.29, according to The Council for Community and Economic Research. That higher percentage carries across all expenditures, from child care costs to haircuts."

It's easy to ridicule when you live in a low cost of living area, but when the same food costs almost double, calculations often don't add up in the same way.

grantmeaname

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Re: The real cost of living: $150K minimum
« Reply #29 on: May 10, 2012, 07:46:46 AM »
It's possible to live in Ohio for about $12,000 a year. I do it. I get that New York is more expensive, but there's no way I can respect a number more than 12  times greater than my annual expenses as the "minimum". That is way, way beyond a reasonable 72% increase.

elysianfields

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Re: The real cost of living: $150K minimum
« Reply #30 on: May 23, 2012, 02:58:46 AM »
I'm not sure if this is the right place to post this, but the subject matter is similar.

Did any of you follow the Todd Henderson blog-posting brouhaha in September, 2010, when he (a U of Chicago Law Professor) whined that President Obama's plan to raise taxes on people making more than $250k would make his life too expensive?

Whatever your political stripes or your views on progressive taxation, you can imagine the reaction Prof. Henderson's post rightly caused.

The author deleted the original post, but thanks to Google caching the Internet, you can read a copy of it at the bottom of the commentary on this page:

http://delong.typepad.com/sdj/2010/09/todd-henderson-we-are-the-super-rich.html

SpendyMcSpend

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Re: The real cost of living: $150K minimum
« Reply #31 on: May 23, 2012, 03:05:31 PM »
In NYC and LI, where you live determines your salary.  Let's say you live within 10 minutes of work by car.  The job you are most likely to have would be retail, supermarket, waiting tables or minimum wage, unless you own a business.  So you are making the NY minimum wage or so.  Let's say you make $10 an hour to be fair.  So you are pulling in $1600 a month gross.

In NYC and LI, the lowest rent you could pay would be about $1000 if you wanted to live in a studio, or $1000 to share a 2 bedroom apartment or rent out a room in someone's house so this means you are a single person.  I've not seen any rentals even in crappy areas for less.
Add in food, health insurance you are around $1350.  I can see how this would be hard for someone who works close to home.

Now, the higher up in your career you go, you are probably going to have to get to a different town in order to work.  In LI and NYC this is likely to be more than 15 miles away, as there are only a few centers of commercial activity including NYC.  The closer you are to the commercial activity the higher the apartment rental prices are.  So let's say you stay put in your $1000 apartment.  You now make $30 an hour x 40 hours a week =  $4800 gross a month.  Take out taxes and you are left with $3360 a month.

I agree with you that you could definitely live on that, but you'd at this point need to spend more on gas or a train ticket.  Biking 20-30 miles one way is not really feasible (even according to MMM).  So rent would still be $1000 for the studio, $200-300 a month in gas, $100-150 in food, health insurance = $60 (now that you have an office or whatever job) , $100 for parking, If you work in the city tolls are $5.50 each way times 20 days a month = $220 per month (for one person).  You could also take the LIRR which is about $300 for a monthly ticket instead of gas, parking and tolls.  Also you are spending 1.5 hours each way commuting. 

Add it up = $1000 (rent) + $300 (train) + $100 (food) + Metrocard $105 (no bikes on subway during rush hour) + $60 (health insurance) = $1565 a month and $18,780 per year.  That's probably the minimum you could live on provided you have no other expenses than those listed.  I am probably forgetting some essential expenses but for now this is the bare minimum for one person. 

I wonder how low you could get by with a couple instead of a single person:
You could share the studio = $1000   $300 each for train tickets = $600   $105 x 2 for metrocards  $150 a month in food and $100 for family health insurance through work  = $1910 per month   $22,920 per year in expenses bare minimum.

Now if you want to have a kid older than age 2, you'd need a one or 2 bedroom and then prices get really wacky.