$80k in Kansas City and $150k in San Francisco is exactly the same amount of money after accounting for differences in the cost of living.
https://www.wolframalpha.com/input/?i=$80000+salary+Kansas+C...
https://www.wolframalpha.com/input/?i=$80000+salary+Kansas+C...
Even if you assume that all your expenses are linearly multiplied (hint: Amazon costs the same no matter where you live), your savings are a lot more afterwards. If you were living on $40k/yr in Kansas City, you could move to SF and suddenly be saving $80k/yr.
Would you really rather have $600k in Kansas City than $1 million in SF?
*editted
Of course, you also have the option of downsizing into a smaller apartment. The amenities in a large city make it much easier to have a small apartment (for example, in NYC I drop off my laundry instead of washing it at home or hop around different coffee shops to work with a change of scenery). My quality of life is definitely higher in a small NYC apartment than a large Vermont house.
I meant to type 3K/mo (which is where my 36K adjustment came from). And yes, I've actually looked up housing in the Yay when I was considering a prospect there. Honestly, at the tiime I was looking for 2 bedrooms so my 3K adjustment may actually be under because now I need 3 bedrooms.
>Of course, you also have the option of downsizing into a smaller apartment.
No I don't. I have a wife and 2 children who if I can afford to give them their own room, I will.
That being said, I understand my calculations do not apply to everyone because we are not all at the same places in our lives (and may never be).
Fair enough, I didn't mean you specifically. Once you have a family the advantages of a low-cost locale definitely become greater.
Of course, the advantage of working in SF/NYC is that by the time I'm ready to have kids I'll have enough money saved up to buy a house in a low-cost area in cash.
That doesn't follow from the argument. If the COL adjustment means that the salary differential is not enough to cover the difference, you will be able to save more in the low cost location as well.
Of course all of those arguments are reductive as COL is not that easy to calculate and there may be other financial advantages to being local to the higher cost area (more diversity of work, less risk at job loss, or higher chance for a lottery style payout for instance).
That's assuming you are spending all of your income.
If you're saving money in KC (on $80k/yr) you should also be able save twice as much on $150k/yr—even if you assume a linear cost multiplier for all your expenses.
>you're much better off making $150k in SF than $80k in Kansas City.
Don't forget state income tax and tax bracket. Also don't forget that some things like student loan interest aren't deductible above $80k. And don't forget that to get the mortgage interest deduction you have to actually own a house (easy in Kansas city on $80k, not in SF on $150k). The list goes on (price to get your kids into a decent school, etc) once you really start to dig into it.
SF is great if you don't mind rooming up with people or living in a tiny studio. To raise a family though... it's not so cut and dry.
I bought my house when I was making about 60k. My last local job paid 220K, working for a company that is now being bought by Bayer, so I have seen the difference between 80k and 150k. 80k in a cheaper place is far better, especially if you are renting.
As far as dropping off your laundry, then you also have to consider that you are spending more money per load of laundry than I do by using the washing machine.
Now, what is true is that cost of living calculations are not linear: A simple multiplication doesn't really capture the differences between making 30k, 60k, 80k and 150k in the same location: There is a point after which cost of living doesn't matter: In St Louis, for instance, I'd argue that anything more than 70K or so is just flat, past tax rate differentials, because you are talking luxuries that are about the same everywhere. That line, however, is way past 150k in San Francisco, because housing cots are nuts.
In terms of raw salary, I made $10k less, but my money went infinitely further in the South. I wasn't hurting for money in CA, but I had to be much smarter about my financial choices towards the end of the month. In the South, I always has leftover money at the salary. I mean, that 740 sqft apartment in CA for $1200 really sucked compared to that 2 BR house I was renting for $850 in the South.
What escalates in expensive areas is really just housing and other costs related to physical space, like parking and transit. As he said, Amazon costs the same everywhere. So do your cell phone and computer. Utilities, food, gas, clothing, medical, all of those really don't vary all that much. They might swing by 50% between the cheapest and most expensive areas in the US, but that's nowhere near multipliers like 3x that people try to claim from just the housing data point.
After tax.
Or, to use another analogy, it's like being the wealthiest man in a developing nation. There's no amount of money that can buy you reliable infrastructure in a place that fundamentally lacks it.
Oh, and this is just the monthly cost at the apartment building, not for destination costs which are separate.
Almost every city in America besides NYC is built under the assumption of car ownership and, for that reason, the vast majority of people have cars. NYC is the only city in the US where the majority of people go without one, because the infrastructure is in place to support it.
I think you've actually got this backwards. People in NYC would prefer to own a car, just like everybody else in America. The difference is that in NYC it's a lot more expensive and difficult (traffic, parking, etc). That, coupled with the presence of a strong transit system, results in low rates of car ownership.
In Kansas City, to take your example, there actually is decent bus transit [0]. But owning a car is also dirt-cheap and far more convenient than owning one in NYC. So people own cars. I live and work directly on a train line in St. Louis, but I still own a car, because, why not? Cost of ownership is very low -- parking is included at my apartment (and free and easy basically everywhere else) -- and it gives me more options. But I definitely don't need it.
In summary: 1) You absolutely can get around by transit in many (most?) largish Midwestern cities; 2) People own cars anyway because it's cheap and convenient; 3) People choose transit not when it's merely convenient, but when it's more convenient than car ownership.
[0] http://ridekc.org/assets/uploads/documents/SystemMap.pdf
I'm not trying to argue over the merits of living in a city vs a suburb. The parent stated that cars cost the same in KC and SF and I'm providing a realistic alternative -- they do not because of parking and ancillary costs. At this point it is obvious we need to move out of the city and it is down to an optimization problem of how much space we want vs how many hours a week i can see my child (e.g., I can live in NJ, but i wont be back home in time to see kids 4+ days out of the week.) I imagine the calculus is the same in SF, but I cannot say firsthand.
What a weird remark. Have you considered that there might be people who don't fetishize cars like you do?
I very specifically hate driving. I specifically choose which cities I live in so I can avoid driving.
I've tried transport in most cities outside of NYC. It's really not on the level of NYC. Yes, there is a bus system but it's hardly comparable to a subway system where I can get anywhere in the city throughout the night with minimal waits.
I feel like you might have this loaded as a sort of generic thing you say to people, but it doesn't apply here. I'm talking about the tradeoffs people make in general. Calling me a car fetishist is a non sequitur.
What I'm actually saying, though, is far more benign, which is that just as many people would own a car in NYC as in Kansas City if it were equally convenient and inexpensive [0]. People (in general) don't choose public transit merely because it's convenient. They choose transit when it's more convenient than car ownership.
The flip side of this is that high car ownership rates aren't necessarily evidence of nonexistent or inadequate transit. Where car ownership is cheap and convenient, people almost universally choose to own a car (even if other options exist).
[0] Well, clearly not just as many. I don't like driving, either, and New York is attractive to me, too, because it enables that preference. But, still, consider that nearly half of all New Yorkers do own a car, despite how wildly inconvenient that is. Consider also that even in cities like Detroit and St. Louis something like 25% of people are carless, so there's some baseline level of poverty (even in very inexpensive cities) that prevents ownership. All of which is to say that a 50% ownership rate in NYC actually strikes me as pretty high (and as evidence, again, that people really will put up with a lot to keep driving).
Edit: for the record I don't live in and have never been to Kansas City.
This statement is farcical. You do realize that the median wage in SF is less than $100k. How do you think those people are living?
Have you actually lived in SF or NYC? You're totally out of touch with the actual costs.
Yes, housing is expensive. But you can still easily get a solid apartment for $3k/m. Add in another $2k/m for food (high!) and that's still only $60k a year. You're still left with $10k more than the KC developer even started with.
Unlike you, I'm actually using real numbers and the reality on the ground. I made $150k/year in NYC and managed to save almost $100k/year.
Oh great thanks
What does the same apartment cost elsewhere though? Cost of living calculations are not for calculating how little you can possibly spend in a given location, they are for comparing the same standard of living in various places.
It sounds like you are willing to sacrifice your standard of living to make more money, which is fine, but not comparable to the parent's calculations.
Most of them are grandfathered in via rent control. Some immigrant groups give preferential treatment to people coming from the old country, but if you are on HN, you can't access those networks, and you might be too fussy anyway.
Who does your taxes? Your take-home in NYC on a $150k/year salary is going to be like $90k. Spend $5k/month on food and rent, and you're saving like $20-30k/year.
Your income after taxes in NYC would be about $100K (assuming Single filing status, no dependents, etc). That's without paying for literally anything, including rent, utilities, food, transportation, entertainment, internet, insurance, etc. Can you clarify how you managed to save so much?
Second, even that million+ condo only cost me a third of my salary, including property tax and HoA after tax breaks and shit. Literally everything else is essentially fixed cost (eg: while labor for renovations is a bit more expensive, the bulk of the cost is in the materials, which are shipped from out of state in most cases). Cars aren't any more expensive, etc.
So when you're borderline, big cities (I'm on the east coast, but same applies) are totally not worth it. You'd be living paycheck to paycheck. But once you reach a threshold, it's just better.
Now there's remote work that messes up with all that math, obviously.
Even if my property was to lose 50% of its value tomorrow, its still better than renting, or getting an expensive car, or whatever. And in the best case, it will have a hell of a return.
For one, I'd be paying about half as much in income taxes, even if I was earning the same salary in both places.
For two, I'd be living in a midwestern state with more reasonable laws and regulations, as opposed to California.
Of course, I'd rather make $100,000 and live in Montana, or Alaska, or the northern band of New England, than in either of these places...
Clearly there are other cost and quality of life tradeoffs to consider, but the above gives you a pretty good baseline to work off.
Housing will swallow everything in any real apples-to-apples comparison. But if you can accept that you'll be living in a much worse apartment, then the COL differences aren't as extreme as they're generally stated to be.
As I said elsewhere you need to make that after-tax housing cost comparison. Aside from a few other potential factors like private schools, most of the other purely cost deltas are going to be relatively modest.
To be fair, it's a lot worse than that. I live in a nice, spacious, modern loft in the middle of an urban area. We're not talking about a big, suburban house. Just a nice apartment. I'm looking at apartments in the high-COL city that resemble my current apartment's entryway in size and in conditions I wouldn't even consider here.
No, because not only do we have a progressive federal tax system, but state/local taxes in San Francisco are higher than they are in Kansas City.
Just running the numbers for a simple case, say you are single and renting. You earn $80k in Kansas City. Based on http://dor.mo.gov/forms/MO-1040%20Fillable%20Calculating_201... it looks like $2100 is not taxed as a personal exemption and $5000 is not taxed if you pay at least that much in federal taxes (which we will; see below). $6300 is standard deduction. So deductions are $13,400, taxable income is $66,600. Per the table on page 25 of http://dor.mo.gov/forms/MO-1040%20Instructions_2015.pdf that gives us $3771 in MO tax. Note, not enough to make it worth itemizing federal taxes if you rent.
Federal taxes for 2015 would give you a $4000 personal exemption and $6300 standard deduction, for taxable income of $69,700. That's gives a federal tax of $13218.
Total taxes are $16,989, for after-tax income of $63,011.
OK, let's look at San Francisco. Salary is $150k. Looking at https://www.ftb.ca.gov/forms/2015_California_Tax_Rates_and_E... the standard deduction for state taxes is $4,044 (less than Missouri, which is ridiculous given cost of living). Personal exemption is $109 (really?). Taxable income is $145,847. State tax is $11040. That's enough to make it worthwhile to itemize federal deductions. I didn't bother to look into the AMT rules for CA; this is meant to be a simple estimate. By definition the AMT can only make things worse here.
Federal taxes again have a $4000 personal exemption, our $11040 itemized deduction, taxable income of $134,960. Federal tax is $30860.
Total taxes are $41900, for after-tax income of $108,100.
OK, so say you were living on $40k in expenses in Kansas city, making $80k pre-tax, saving $23k per year. You move to San Francisco, start making $150k pre-tax, expenses go to $75k (if you accept the 1.87x cost of living difference). You are now saving $33k per year. More, true, but nothing even close to $80k/year.
Note, by the way, that the cost of living difference is largely driven by housing costs in this case....
> Would you really rather have $600k in Kansas City than $1 million in SF?
It really depends on my lifestyle. Still for a single filer, the Federal marginal tax rate on that extra $400k is 39.6%. The CA marginal tax rate is 12.3%. Medicare marginal rate is 2.35%. So overall marginal tax rate is 54.25%. CA taxes on that first $600k would be about $60k while MO taxes would be about $35k. So the extra $400k is actually about $160k post-tax.
This is the part where lifestyle matters: housing in SF can eat up a large chunk of that if you let it... If you're single, SF is probably a win in the 150k vs 80k case. If you have a family, chances are it's not.
You can buy a 3BR, 2,000 square foot in Overland Park, a great school district, for $200-250k. You'll be about a 15-20 minute drive from your work downtown. What does a 3BR, 1,700-2,000 square foot house run you within 15-20 minutes of downtown Mountain View, in a good school district? It looks like $1.5 million+. That's the difference between a $7,200 per month mortgage and a $1,200 per month mortgage.[1]
So housing alone almost completely wipes out your extra income. Then you have other costs that scale with cost of living: house cleaning, after-school child care, etc. You'll pay more for gas, you'll pay almost double for a cocktail, etc.
Obviously, once you're up to $1 million per year, your're better off in San Francisco. But even in SF few programmers are earning that much. $300k is a solid household income in that area, and in that range you're not better off, materially, than you would be in Kansas City.
[1] A family making $300k in the Bay Area is getting close to not even being able to qualify for a mortgage big enough to buy a house close to work.
I guess it depends on ownership v. rent. Over the long term, housing is a forced savings account.
Even 20 years out, that $7,200 per month is going to be worth a lot of money. Sure, you paid $1.7M in mortgage payments, plus property tax and maintenance. But you also have a place that probably kept pace with inflation and at best, doubled in value. If value climbed at a modest (for SF) 4% per annum, that house would be worth $3.8M in 20 years.
So, in 20 years, you're looking at an additional $2MM (3.8M - 1.7M) increase in network by living in SF. This is assuming your compensation does not include stocks/options, which are rare in the midwest, but very common in SF.
150k is much less after taxes.
Problem is, they aren't. Income taxes are regressive, so your percentage income to taxes goes up as you get paid more. Everything else should scale linearly.
> (hint: Amazon costs the same no matter where you live)
I spend maybe 3% of my annual salary on Amazon and similar websites. It's a non-factor.
> If you were living on $40k/yr in Kansas City, you could move to SF and suddenly be saving $80k/yr.
Only if your expenses go up by the same scaling factor as your salary. As soon as they get out-of-whack even a bit in favor of expenses the math starts to break down. It also breaks down if you are saving a small-ish portion of your salary to begin with.
Because the staff delivering that labor also experiences an X multiplier in shelter costs (and for lower-wage workers, the multiplier is highly regressive and frequently much higher for them to obtain an equivalent quality of life), the labor input cost is increased. Unless you DIY everything, including not eating out (restaurants have very high labor input costs), fixing your own vehicles, do your own plumbing/electrical/HVAC, do your own dry cleaning/dentistry/vision care, etc., you'll see commensurately higher costs for any material goods and services with high proportion labor input costs.
For busy single professionals, two-income couples, or families, it is not realistic to even mitigate these costs. A big chunk will unavoidably come out in property taxes for everyone, paying for public schooling: all those administrative staff, operations staff and teachers, wanting to live as close-in as they can afford, paying those linearly-increased dirt costs, will be expressed in your property tax bill.
For the vast majority of people not connected with the real estate industry, they are far better off commoditizing their shelter cost complement, see [1] for this complements concept. This means vigorously opposing any increase of the "value" of their homes, even when selling. In the US, you will never, ever make back that "increased value" in the average time most US homeowners hold a mortgage (7 years), if you honestly accounted for all the actual costs you bear in all consumed goods and services for increased real estate prices. That increased value only benefits those who have a high churn rate on their properties.
[1] http://www.joelonsoftware.com/articles/StrategyLetterV.html
My job offers in Minneapolis and Seattle were similar from a COL adjusted perspective (70k/yr in Minneapolis vs. 130k/yr in Seattle). However, after two years in Seattle my cost of living has stayed flat while my income has grown by about 20%.
Every single penny of that 20% is going into investments, and that makes a massive difference to my expected net worth in 10 years. And I can take that net worth and move back to Minnesota if I want (there are certainly universes in which that's an attractive option).
edit: I do acknowledge that life situations in which COL adjustments eat up or exceed 100% of the income difference between Seattle/Minneapolis could exist, but they are an edge case and certainly not the rule.