At the following link, you can compare U.S. cost of living and income city by city. The calculator shows, for example, that a $90,000 salary in San Francisco or Seattle is like having a $50,743 or 66,949 salary, respectively, in Salt Lake City. Here is the link: http://money.cnn.com/calculator/pf/cost-of-living/?iid=EL. Play with it and just see the incredible difference it makes where you live, or perhaps where you might want to retire!
An acquaintance from Boise called me a few years back lamenting that her salary was half that of a co-worker living in California. Her co-worker received a 5 percent match on her 401(k), just as she did but of course the lady in California was getting a much bigger distribution based on her larger salary. She cried how unfair this was. I asked her if she could transfer to California. She said yes so I encouraged her to put the numbers on paper and only make a decision based on income, expenses, taxation, and cost of living, not just on how she felt.
Let’s stay unemotional and just use mathematics to further analyze this example.
- Federal tax on $100,000 of income received in California will be taxed twice as much as $50,000 of income in Boise, Idaho.
- State tax in California is double that of Idaho’s.
Does the $100,000 salary look as appealing now? As we talked, the lady in Boise added more information to our discussion. She said she has a 401(k), but she also has a pension that takes the top three income years and multiplies it times 40 percent to determine her income at retirement. I asked her if she would like living three years in California? She agreed that she could. She prepared the numbers as if she did transfer to California for three years and then retire. She would have a 27 percent increase in her 401(k) and would absolutely double her pension income. The math says $100,000 times 40 percent = $40,000 of income for life. If she continues to live in Boise, $50,000 of income times 40 percent = only $20,000 of income for life. For doing the same work in California as in Boise, she can more than double her lifetime income at retirement. She can also retire three years earlier and she will have much more in her 401(k). She will also have a dramatic increase in her cost of living, so she will need to consider that as well, because this will affect the potency of her increased salary.
Eventually this woman did decide to move to California. She looked for an area that would allow her to transfer and still maintain a fairly reasonable cost of living. She moved to the San Luis Obispo area and has really enjoyed it. The costs are so much higher than Boise, but she will be doubling her income for life after a few short years.
I realize that not everyone has access to a transfer. But this is my point: Don’t get emotional about financial decisions. Get the numbers in front of you so you can make the best decision possible. Don’t just sit back and do nothing. Check out your options. Money Mastery Principles 5 (Know the Rules), 7 (Always Look at the Big Picture), and 9 (Understanding Taxation Allows You to Keep More of Your Money) are involved here in making proactive, logical, and systematic decisions that will help you get the most out of your money. I hope you can see how valuable these principles are and how they can keep you unemotional so you can make the best choices going forward.