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When people compare salaries / the cost of living in different cities, they often fail to account for the fact that many people don't spend their entire salary
by ammon 10y ago
When people compare salaries / the cost of living in different cities, they often fail to account for the fact that many people don't spend their entire salary in the local economy. If you are trying to save money (or pay for college, donate to a cause, or buy a Ferrari) this costs the same no matter where you live. You should only apply the cost of living adjustment to housing (and maybe food). When you do this, living in the Bay Area starts to make more financial sense.
- 2bluesc 10y agoI agree 100%. Right now in SF and get paid relative to SF. If one day I return to the Midwest (or almost anywhere else) what I have in the bank has more buying power.
- gricardo99 10y agoWhen people compare salaries/cost of living in different cities, I think they probably look it up online, where the data is already summarized. The cost of living comparisons I've seen are comparing the "local economy". They compare the cost of: housing, food, transportation, health care.
- rizzom5000 10y agoDon't forget taxes. Your taxes are 25% higher in San Francisco compared to Seattle.
- linkregister 10y agoWhich taxes? Marginal California income tax + MediCal is about 13% at the $120k bracket.
- geldan 10y agoSeattle has no income tax, and sales tax doesn't apply to most food from the grocery store, so taxes in Seattle really depend on how you choose to spend your money.
- seanmcdirmid 10y agoWashington state will ding you in other ways to make up for the lack of an income tax...e.g. more property tax.
- hacknat 10y agoActually Seattle's property tax is pretty good. You wouldn't believe how unprogressice WA is in practice.
- cmdrfred 10y agoNever thought of it that way. Percentage of income consumed by state and local taxes, housing, etc compared and average gross income would show the whole picture.
- mrkurt 10y agoWe lived in the Bay Area for 3 years. Prior to that, I agreed with you. Living there changed my mind. More of our salary went to the local economy than I expected. We have a bunch of kids, which amplified the effect, but I am astonished at how much money it took to not feel like we were struggling to stay above water. Babysitting, gas, food, clothing, activities were all extremely expensive. Even insurance was high. The things that didn't go to the local economy still cost more — because taxes. We bought a car from Minnesota and paid a huge amount of excise tax to the state of California. Almost everything we ordered from out of state was subject to high local sales taxes. Income tax didn't help either — our higher salary put us in a higher tax bracket. The top $50k of salary only netted us $25k in buying power, which was eaten up by rent.
- nostrademons 10y agoThere's a stage-of-life effect. Bay Area is great for young people, where cost of living is a much lower proportion of income. All the excess goes straight into savings or discretionary consumer goods, where a Bay Area dollar is worth just as much as a Rust Belt dollar. It's much less great for a family, where you have additional food, housing, childcare, and health costs that rise along with cost of living.
- mrkurt 10y agoI don't think that's entirely true. Housing and food are still the highest spending categories. Most of the excess goes to taxes, I think. Families just make it more obvious that's happening.
- chrisweekly 10y agoChildcare exceeds all other household expenses (incl housing) in a huge % of families. Wish I had stats to cite, none avlbl atm.
- mrkurt 10y agoOh yes. That wasn't a factor for us (stay at home parenting!) but school expense would have been if we'd tried to get our kids good schooling.
- twblalock 10y agoYes, this is absolutely true. Your car, clothing, computers and gadgets, and most of your groceries will be a lower percentage of your discretionary income in the Bay Area than in most other places. Your housing and gasoline will cost more, and maybe your car insurance. However, the caveat is that housing is so expensive here that it's difficult to save up for a down payment on any kind of housing on a single engineer's salary. A 20% down payment on pretty much anything is more than $100k, and even a highly paid engineer will need a long time to save up that kind of money while also paying high rent. An 80/10/10 mortgage or some kind of mortgage with PMI is easier to achieve, but those have significant drawbacks. So, if you have significant cash savings, or a home somewhere else you can sell, you can achieve home ownership in the Bay Area (but it will probably be a smaller home than the one you have now). If you don't aspire to home ownership, you'll be fine too -- a software engineer with an average salary can afford to pay rent here, and people who say otherwise are simply incorrect. But if you are just starting your career and move to the Bay Area planning to buy a home anytime soon, you're going to be disappointed. Given that many people predicate their quality of life on home ownership, that's a pretty big caveat.
- nostrademons 10y agoIt takes about 2 years to save up $100K on a typical Bay Area engineer's salary, if you're fiscally prudent. Figure that $150K/year after taxes is about $110K/year, and live on $60K/year. That's eminently doable even in the Bay Area. The problem is that $100K is a very low estimate for a down payment in the Bay Area these days. Most people I know are getting parental help to put down $500K down, because with housing prices running around $1.2M, that's what's necessary to get under the $700K jumbo mortgage threshold.
- st3v3r 10y ago>It takes about 2 years to save up $100K on a typical Bay Area engineer's salary, if you're fiscally prudent. Read: Don't have a family and don't do anything special, like take vacations. Also, average rent is $3600/month. That's over $43k a year. That leaves $17k for everything else, following your plan.
- alexhutcheson 10y agoLyman Stone has a good blog post[1] suggesting that it's rational for Millenials loaded down with student loan debt to live in high cost-of-living regions, for exactly this reason. The high nominal incomes give them more power to repay their student debt, which is not cost-of-living adjusted. [1] https://medium.com/migration-issues/millennials-have-less-debt-more-debt-burden-88950a7ee9c0 https://medium.com/migration-issues/millennials-have-less-de...
- amorphid 10y agoThis worked for me. I borrowed way too much money going to school. As a fresh MBA grad in the suburbs of Los Angeles, California, with few marketable skills, I couldn't find any career options that would offer a starting salary that came close to covering my costs. My big break was finding a job in San Francisco. I charmed my way into an entry level sales gig with a base salary of about 35K USD (in 2004), and was soon making at a 70K-ish "annual run rate" (stealing that from startup PR lingo). And that job did all of the lead generation for me. I wasn't able to find a job like that outside of a big city. Even when I was homeless for a bit a few years later, I chose to stay in San Francisco over moving in with my suburban LA parents because there I saw more opportunity in San Francisco. For me, it was riskier to play it safe in the burbs than hustling in San Francisco. It's better to burn out than fade away. The way I see it, if you wanna make it as a professional, and you don't have a reasonably understood career path to follow, it makes sense to go where the money is. You can live financially cheaply in most places, and you'll have to decide how much you're willing to work for it. For me, living in San Francisco is, and has been, worth it.
- sulam 10y agoWhich leads to a funny observation -- I have never seen so many expensive German automobiles in cheap apartment complexes in my life. Driving elsewhere makes you wonder where all the fancy cars went.
- ohwello 10y agoAnd how many of those fancy car owners complain that they can't afford the down payment for a condo?