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> A lot of people are saying this is a bad deal because you don't get to keep your entire TC when you leave the region - you effectively end up losing more TC i
by philsnow 6y ago
> A lot of people are saying this is a bad deal because you don't get to keep your entire TC when you leave the region - you effectively end up losing more TC in the long run. True but like... you also can have way lower expenses for housing... and if you move to a state with no income tax, you might not even lose almost any net income.
It's easier to think of your "total compensation" without taking into account cost of living. Lots of people (esp tech folks) don't have a personal budget and don't keep track of their costs / expenses in nearly the same level of detail that they keep track of their income.
The conventional wisdom on HN (for people who aren't going to be founding companies) is that if you join bigco FAANGs and bounce around among them for 20-30 years, you'll end up with way higher expected net worth by retirement than if you play the startup lottery.
Part of this is because of the power of compound interest. You can get that engine started in your early 20s and pour a lot of your "spare" money into it, especially you don't have kids yet.
This same argument applies to lowering your costs. If you live in SF, you could easily be paying $40k/y in rent or $100k/y on a mortgage. If you buy in a small town with 90% of a bay area comp package, you could be plowing all your housing savings into the compound interest machine.
edit: $/y instead of $/mo
- jakear 6y ago/yr, surely?
- philsnow 6y agoha, I misread your reply and came into this comment box all ready to say "no really mortgages can be like $100k/y there", but then actually read what I typed.
- deleted 6y ago[deleted]
- novok 6y agoTaxes are bigger, but rent is the only real major difference in costs, and your income starts outpacing whatever the rent difference is between say SF vs Seattle or Reno relatively quickly. Quantified it's about $20-50k/yr in pretax income. $20k being the single person and $50k being the person with kids who goes to public schools. Definitely a good thing to do during covid times, but you might want to move back after covid is over.
- philsnow 6y ago> Taxes are bigger, but rent is the only real major difference in costs Have you ever lived in a small town in, say, Texas for a month? Nearly everything is cheaper there, and not by a little. Gas can be $1.50/gallon instead of $3.89/gallon. Dairy, produce, meat are all cheaper. Utilities/energy is cheaper. Maybe it doesn't have as big an impact if you don't have kids, but I only have three and man these things eat a lot.
- deleted 6y ago[deleted]
- exged 6y agoTaxes and rent are still bigger. For a senior FAANG engineer making $400k a year, CA income taxes are nearly $40k/year, and rent on a house is perhaps another $60k/year (alternatively, ~$100k/year for a mortgage). All other basic needs are a rounding error compared to that, even with a family.
- rootsudo 6y agoIt took me a second to realize you just meant California State taxes....
- andi999 6y agoWait, you only pay 40k tax on 400k? Or how much other taxes on salary are there in the US?
- mythz 6y agoHe's just talking about California State Taxes, not Federal Income Tax.
- glenngillen 6y agoThat’s just state tax (CA being one of the highest). They’ll have to pay the same federal rates as everyone else on top of that. I assume the reason for excluding it is that’d stay constant no matter where you live in the US.
- philsnow 6y agoSo in what I wrote above, there are two chunks of money I'm saying you could throw in the CIM: the money you'll make by staying at FAANGs instead of playing startup lottery, and the money you'll save by living somewhere cheaper. The conventional wisdom (again) is to stay at FAANG and stay in the SFBA. You can also leave SFBA and work at smaller companies that don't offer FAANG comp, and it can still make sense because of the latter chunk of money (lower costs from housing and general CoL).
- s1artibartfast 6y agoAlso the one time 200-400k down payment on a house.
- paulcole 6y ago> you could be plowing all your housing savings into the compound interest machine. What specifically do you mean by “compound interest machine”?
- novok 6y agoA brokerage account that reinvests dividends with index funds.
- disgruntledphd2 6y agoBecause as we all know, markets never go down. How much would you have made if you'd invested in a FTSE index fund in 1990 till 2020? Very little, as it happens. The reason everyone says index funds are great is because the US markets have done well historically. This is not a guarantee.
- lsiebert 6y agoTrue, but the dividend, even reduced, buys you more stock when the market is down. Stocks generally have done well long term.
- disgruntledphd2 6y agoThis is actually only true for the US, other mature markets (such as the UK) have not shown this pattern (look at FTSE 100 returns if you don't believe me). Additionally, sixty years ago, the UK markets were the largest in the world, and I suspect that an indexing strategy would have done well during the height of the British Empire.
- lsiebert 6y agoI honestly am not sure where to look for dividend reinvestment for ftse 100 returns, so I guess I'll take your word for it, but I know that the european and london exchanges haven't done as well as the US. What metric are you using to say largest in 1960 though? Not disagreeing, just curious.
- hellisothers 6y agoAll excellent points I make myself but let’s say you move out of SF and no longer pay $3000/mo in rent but now pay half that $1500/mo. You’re now saving $18,000 a year which is cool but almost al your other expenses stay the same (car, Xbox, TV, Internet, insurance, etc). You’re going to lose more than $18,000/yr in TC in the near term and long term (after you leave stripe) you sure and he’ll are. So the moral of my story is don’t move out of a high cost city for the money, it doesn’t add up. Move out for a myriad of other reasons that may be meaningful for you (family, life, etc)
- edmundsauto 6y agoThis isn't really true. Everything in the Bay Area is more expensive. A quick Numbeo search, I found that housing in SF is a little more than 2x as expensive as in Austin, so somewhere around the same ratio. Consumer prices, excluding rent, are 43% higher in SF than Austin. Even your chain restaurants are more pricey. Everyone has to pay rent, ya know?
- deleted 6y ago[deleted]
- UncleMeat 6y agoDepends on your needs. My wife and I both work remotely now. We need a 3BR place to stay sane because we need two offices. Compared to the south bay, we are saving >3000/m in rent. At a high compensation, marginal tax rates in CA approach 50%. So that 36000 saved is worth 72000 in TC difference. It gets more dramatic if you pay for childcare. Childcare in the bay area can easily run 20000 more than it might cost in a lower cost of living area. A family of four that has two kids in day care might save 60000 just off rent and childcare differences. On the other hand, for single people who would have a 1BR wherever they chose to live, the rent difference may only be 20000 and the rest of expenses don't change much and then suddenly dropping 20% on your 200,000 TC ends up being a bad deal.
- chrisBob 6y agoFor some people the housing costs are even more significant. My target house is 6+ acres within 15 minutes of work. I currently have that in our two income family, and it would make moving very hard. Not only are nominal costs significantly higher in these desirable locations, but the quality is also significantly different.