Stay Away From the Bay

Why would I give you such a message?  Well, the cost of living in the Bay area is much too high to save a large portion of your income.  As you may know it is not how much you make that counts, it is how much you save.  I wrote last time how it was frugality that mattered.  Earning $500,000 can still feel like you are barely scraping by.  So let’s use a scenario where you are working in Houston and are offered a promotion to headquarters in San Francisco with a nice $15,000 raise (25%) to $75,000.  Should you take it?


One of the biggest expenses for a household will be income taxes.  In Texas, with a $60,000 income you were paying $8,145 in federal taxes and $0 in state income taxes.  However, moving to California with your new salary puts you at $11,895 for federal taxes and around $4,000 in state income taxes.  So your $15,000 raise is reduced by $7,750 in additional taxes, but it’s OK because you are still up $7,250 right?


Excited by all the extra money you are going to make you move out of your $1,245 a month place in Houston and show up in SF after two days of driving.  You are shocked when you go on a tour of a place similar to the one you had and the rent is $3,590.  You obviously can’t afford that, so you decide to rent a bedroom in with a friend who has a two bedroom.  He is a nice guy and gives you a discount, only $2,000 a month.  So instead of paying around $15,000 a year for rent you are up to $24,000 and you are sharing a place.  You were $7,250 ahead after taxes, but with $9,000 more in rent you are now $2,750 behind after rent.  But it is fine because you are living in such a cool place?


You have been good and love your old car has allowed you to spend relatively little on car expenses.  However, in SF you realize that your car doesn’t get to park for free.  The best you could find is $250 a month.


You were an aspiring foodie, but now all the restaurants in SF are calling out to you.  Your new friends are the Yelp Elite and need to try everything so you go along too.  You ate out twice a week in Houston which worked out well, but now you are straining to limit yourself to 4 meals out a week (size of a sample in Houston).  The meals are twice as much, so at $40 a meal after all those special fees and tips you are spending $700 a month, $500 more than in Houston.  Down another $6,000 a year.


Just after taxes, housing, parking, and food you are $9,000 poorer a year despite getting a $15,000 raise!  You were saving $12,000 (20% of your income) and after the raise you are only able to save $3,000 (4%).  I think this is a realistic example.  When evaluating a job offer make sure to do similar calculations.  If you are going to take a job for better pay make you are ending each month better off.  This can be applied to other aspects of a job offer as well.  Compare the benefits, if you can get 401k matching, free healthcare, and other things you didn’t have before it can be significant.

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