Wait, this dumbass page just divides the salary by the cost of living ratio? This is idiotic. It would only make sense if you spent all you salary on "livings", trying to maximize the monthly number of "livings" you get.
What matters is the amount of cash you're left with after you pay the actual cost of living. In this model, 20k/y raise is a 20k/y raise wherever you live, assuming you've already got the monthly balance positive. Of course it's still not the perfect metric but still much better than this bullshit.
So the key is get hired by Google in the bay area and "work from home" in Minneapolis! :-)
At both Sun and NetApp where I was familiar with the compensation practices there was a 'modifier' applied to bay area jobs which increased their compensation, but even with the modifier the 'net' take home pay was less than it was elsewhere.
That said, when I was at Google they had a really interesting pay practice for engineers which consists of a base salary and a 'bonus', the bonus was affected by a personal multiplier and a company multiplier. The system was designed to make it impossible to figure out what the multipliers were so basically is simplified to the old fashion 'tweak the folks we like' non-accountability that you got elsewhere but it certainly gave the impression to people that they were going to earn more money than they actually did. (And yes, it annoyed me, but Lazlo Bock the VP of HR didn't really care that it did :-) Perhaps when they did that whole 10% across the board thing they normalized things a bit (which would have been a good thing, the old system was causing good people to quit when it should have been rewarding them)
Just an FYI for those in DC: on that calculator, Washington is listed under the state of Virginia. Geographic boundaries are tricky business, but c'mon, CNN. You could at least pretend District of Columbia is a state.
I did say "pretend." I'm not interested in debating DC statehood, rather I am interested in a good user experience. In my case, I actually live in Maryland, yet I had to pull up Virginia to find my metro area.
And I'll assert that it just doesn't matter for this discussion.
Look, as someone said elsewhere, this is an impossible problem. You have too many factors to figure out. Have a family? Want to own a house instead of rent? Do you need a car? What lifestyle do you maintain?
The point here is that we're trying to assess what it would cost to maintain a similar standard of living in two different cities. Food. Transportation costs. Housing. Rents. Healthcare. Forget 52" TVs and trips to Paris for the time being.
"I have a wife and two kids. I want to own a 3 bedroom house with a yard. I need a car, and I drive 15,000 miles a year. We eat <x> number of meals at home each week, and <y> at restaurants. We do <z> things as a family including movies. This takes up 80% of our net income."
Okay, now what would that cost in Minneapolis, and what would that cost in San Francisco? That's all we're trying to ask.
On the other hand, consider the more realistic scenario of renting in NY vs. building house equity elsewhere. Given that house equity is the prevalent savings scenario in the US, the average New Yorker has a higher cost of living and a lower savings rate.
In particular, you shouldn't adjust for CoL any parts of your salary that will be spent on (nonlocal) trips/vacations, or on nationally priced consumer goods. The cost of big-screen televisions or Xbox games doesn't get any cheaper when you move from San Francisco to Fresno, for example, and neither does the cost of taking a trip to Paris.
The CoL calculators, as they're usually implemented, make the most sense for people with no real disposable income beyond living expenses, but they don't make a lot of sense for Google-level salaries.
> they don't make a lot of sense for Google-level salaries.
Yes. This was my point.
> you shouldn't adjust for CoL any parts of your salary that will be spent on trips/vacations, or on nationally priced consumer goods.
Indeed, the real comparison of salaries should take into account what you plan to do with the income above the CoL. To the above I would also add that the interest on the rest of your cash stash (you don't plan to spend all of it on LCDs and trips?) is pretty much independent of where you live.
Are you counting sales taxes? How about income taxes? Both affect your ability to buy even national goods, especially now that states are starting to enforce sales taxes on out-of-state items.
Anyone from CA want to chime on what state income and sales taxes are compared to the rest of the country?
I can't speak for California but for New York vs. Minnesota, the taxes breakdown is roughly: 50% in NYC vs. 35% in Minnie. When you look at mortgage deductions - a far more common scenario in the "rest of the country" - the difference is even greater.
I'm getting much lower rates when I plug them into tax calculators. For example, if you make $100k, are single, and take the standard deduction, you pay an overall $18k in federal income tax (18%) and just under $7k in MN income tax (7%), for 25% total. YMMV if you have a spouse, kids, or a mortgage, of course.
I couldn't agree more. Also, I don't know how many times I've heard potential employers who are very interested in me, tell me "well the cost of living is so much less out here, we don't want to pay you jack $h!t!". As if I don't understand how compounding my raise percentage works over the course of my career, or they think my rent is going be drastically different... It's disturbing to think they can get away with it.
> As if I don't understand how compounding my raise percentage works over the course of my career
That only helps if your raise percentage exceeds inflation. Otherwise, you could actually find yourself worse off. e.g:
$100K earnings + 2%
$50K living + 3%
--------------------
$59,756K after living expenses after 30 years.
$70K earnings + 2%
$20K living + 3%
--------------------
$77,177 after living expenses after 30 years.
That's true, and you make good points. I guess another factor is raise percentage, in this industry, I've never heard of a 2% raise unless they're thinking of letting you go... (or you've got 15 yrs under you belt, by which point lets hope you're making enough already) But I bet that's different the farther out you go from cities.... I wonder if there is a correlation with getting crummier raises in the lower cost of living areas as well?
The 2% was made up for demonstration purposes, I'm not really sure how it plays out in the real world. It is a good question. Though consider this:
$70K + 5% [1]
$50K living + 3%
-----------
$2.5M saved after 30 years [2]
$70K for life
$20K living + 3%
-----------
$2.7M saved after 30 years
Even a decent rate may not be all it is cracked up to be.
[1] For the first 15 years, whereafter you suggest it could plateau (at around $140K, in this case, which doesn't seem unreasonable given the current market and historic income increases)
[2] Assumes all non-living expense allocated income is invested at 5%.
> * I guess another factor is raise percentage, in this industry, I've never heard of a 2% raise unless they're thinking of letting you go...*
Sounds like you have never worked for a large defense contractor. The "standard" raise given to ~70% of the engineers last year (my last review cycle working for that company) was 2.1%.
So I work in the same industry, and I'd suggest shopping around some companies if possible, or explore the "consulting" side of things (which can still be very technical), but much more lucrative... I'm sure you can get a good pay bump just from a company switch too.
Low balling potential hires due to cost of living isn't right and won't win you any hires... but.. It's disturbing to think that you'd pay the same, or close to the same for rent wherever you live.
For a bit of backstory, I had already decided to leave Memphis for reasons that had nothing to do with job or pay, and was literally in the market to go anywhere. Shortly after casting my resume to far broader nets than I ever had (I had interest from companies in London, Australia, Boulder, CO, Bay Area, etc.) we took a vacation to visit some friends in the Annapolis area and I fell in love with the place.
With that, I decided to refocus my job search and someone I'd known years prior hired me on for a security-clearance required position in the federal government at a job I'd never done (but which he thought I was qualified for). Because of the customer, my contacts, and the cost of livings increases, I was paid a salary well above the "2012 average base salary" for a Google engineer per the linked article. Before that, I had made something like $60k.
Except for some very specialized positions (SAP, EMC, etc.) in Memphis, I don't know of any engineers making much above $100,000 (though indeed $100,000 in Memphis is a very respectable salary.)
Since leaving, I've had a number of Memphis-based employers trying to buy me back into the area, but the discussion generally dies when we get into money as, at least from my anecdotal experience, wages just aren't that high around there, and the only large paying employers are those who have successfully commoditized the market (FedEx, International Paper, etc.) and aren't hiring 'rockstars'.
In summation, while I'm sure there are people making what I make or above in my field in Memphis, it is by no means as common as a six figure salary in the valley, or bay area, or in places where there are large IT-based firms that are competing for talent. Even if there were, I wouldn't really have been qualified at the time - at least mentally, having taken a job I didn't feel qualified for and making absolutely damn certain I performed well at it made for interesting times, but ultimately boosted my overall confidence a million-fold.
Edit: I would also be remiss to add that at least amongst my peers, colleagues and family, I was doing fairly well. A lot of that had to do with the TN cost of living.
Yeah, but that will only save you a set dollar value, for a limited time. lets keep it simple. say you start out at $70k/yr, and assume $800/month rent (9600/yr). And your friend Joe takes $100k/yr, with $1400/month rent (16.8k/yr). Assuming 5% raises/year (conservative, assume no big promotions) for the both of you, and both taxed a flat 28% (for simplicity). At the end of year 1, Joe has 55.2l, you have 40.8 left over.
In 5 years from now, your buddy Joe is making ~127.6k, you are making ~89.3k. Joe has gained 8.3k more than you GAINED, (which is greater than the difference you pay in rent) So now Joe clears ~75k/year (after tax and rent), and you are clearing ~54.7k. The gap is only going to get bigger from there as time goes on, that's only after 5 years. You've GOT to think of money in terms of percentages, not just hard dollar values, or it's going to bite you.
You're replacing a simple mental tool with a whole complex system. The problem with big complex systems like that is they're built on numerous assumptions. If you're decrying that someone might look at cost of living and base their whole life around it, sure, you have a point. If you're instead arguing that you will always come out ahead being where salary is higher despite higher cost of living, take note of your assumptions: real estate value changes rapidly, no two jobs are completely interchangeable, yearly raises are rare and getting rarer, people in our industry change jobs very frequently, and so on. You aren't necessarily going to "win" (whatever that means) simply by taking the highest paying job.
All very true, and make no mistake, there are a seemingly infinite number of variables one would need to take into account to make a decision on a job/industry/location to live. I was just trying to make the point that most people don't actually stop and do some simple math, even when faced with large, possibly life altering decisions. Yeah, you never know everything, but you have to at least use the information available to you to make the best decision from the information you have. Otherwise you never make up your mind and end up nowhere.
I guess I am really just trying to stress the fact that people all too often see money from a liner point of view, when in fact it can be advantageous to explore the exponential growth side of money as well. That's all I really want to get out there. It's a balance between basing decisions on the known present or the unknown future.
> Yeah, but that will only save you a set dollar value, for a limited time.
Rent typically goes up every year, so the amount you're saving versus renting increases annually, and at the end of the "limited time" you're not paying a mortgage at all.
Say I want to work for Google, want no more than 15 minutes commute, and want to live in a house of ~2400 sq.f (which I live in right now).
How much would it cost me per month (both net and gross, considering that I have to pay taxes prior to paying my rent)?
Up to 15 minutes covers an area of 400 square miles if you're driving from a commuter suburb to an office building and take the freeway most of the way. If either the source or the destination involves a 'proper' city with any kind of population density, that range shrinks considerably.
Your paragraph makes no logical sense, a 20k raise is not the same wherever you live, taxes and the things you'll ultimately buy with it vary in cost so it's incomparable.
Notice how the salary adjustment jives with the CNN calculator too, this is because the cola takes into account the things that people need to spend their salary on, if you buy a vw microbus and sleep in the office parking lot every night and have minimal dining needs then you will notice an absolute difference between regions, otherwise you won't, the salary variance is eaten by the cost of all he usual things people do.
What matters is the amount of cash you're left with after you pay the actual cost of living. In this model, 20k/y raise is a 20k/y raise wherever you live, assuming you've already got the monthly balance positive. Of course it's still not the perfect metric but still much better than this bullshit.