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Splurge and spend whatever extra it costs to stay in Manhattan. Yes, you might save a little bit by staying outside the city and 'commuting' in, but do you really want to spend any amount of your visiting time in a crowded subway, commuter rail or bus? You'll have a much better NYC experience if when you step outside your hotel you are right in the thick of it! There is also so much to do and see in NYC that it's nice to be able to zip back to your hotel room to take a nap, change out of sweaty clothes (in the summer), or just decompress for a little while. Having a centrally located 'home base' will make figuring out where you are and where you want to go easier.
Look around- there are (relatively) cheap places to stay in the city. They'll be small, and maybe not the nicest, but it's the city you are here for, not the hotel.
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