Salary Cut For Lower COL State. Ego vs Benefit

[wealthviahealth]

I have started the process/discussion of relocating to a state with a much lower cost of living and my work has approved this but it sounds like it will definitely come with a reduction in salary. I made a similar move out of the Bay Area a year ago and took a pay cut to do so but it pretty much evened out once taxes between the states were factored in. This next move is about a year later to an even cheaper COL state that has the benefits of being near family, greater access to nature, and the new reality of home ownership that has not been possible due to astronomical housing prices in my current and last location. That being said- it almost feels like my salary is in Benjamin Button mode as this next move will likely bring me down between 20-35k below what I was making when in the Bay Area, effectively negating any raises I have received over the years.
I have a feeling that my quality of life and job satisfaction will greatly improve with this second move ( as it did the first time) but I would be lying if I said that it didnt make me feel less "valuable" somehow. Clearly my ego is attached to my salary in that case but I have also been wondering if it does set me back in future salary negotiations and overall earning potential to be taking another salary cut for this move.
Would love to get folks thoughts who have made these moves and come to grips with making far less but living a higher quality of life.

[ixtap]

Will it affect your savings rate?

As for future salary negotiations, if you go back to a HCOL, the salary will reflect that.

[ReadySetMillionaire]

In my experience, everything is relative -- the market demands what the market demands.  But, I find that my dollars go way, way further in LCOL areas than high ones.

Completely anecdotal, but I know a married couple that live in Columbus, Ohio that make around $250k per year.  They came to mind because they are similar to my family in that the husband is an attorney (like me) and the wife works in healthcare (like my wife). They just bought a 1,700 square foot colonial for $315,000, and it needed completely redone. I lived in Columbus for eight years and can also say that everything -- parking, restaurants, social stuff, real estate taxes, etc. -- are more expensive than where I live now.

I live in NE Ohio, and my wife and I earn about $160k per year.  We just bought a 3,100 square foot colonial, completely updated and remodeled, for $285,000. People visiting back home from bigger cities think we are millionaires or something. In fact, a friend from Chicago stopped by over Memorial Day weekend and said our house would be $600,000 or more in the Chicago suburbs.

What salary makes up that difference? I'm not smart enough to figure that out. I just know that everything is relative.

So, I wouldn't get so tied up in the dollar amount. Look at real estate prices in the area. Check out menus (my friend from Chicago was also amazed that you could go out to eat, get an appetizer, entree, and two beers for $25). I think you'll be pleasantly surprised.

***

As to the above comment about FIRE, it's all relative there as well.  Lower cost of living means a lower FIRE number.

[Paper Chaser]

Life is not a video game, and your salary is not your "score". How much you earn isn't who you are. It's an arbitrary number. It doesn't matter what the number is, and higher isn't necessarily better if the ratio between income/expenses is worse. What matters when it comes to salary, is your quality of life based on expenses vs income.

Housing is the largest part of most people's budgets. Housing prices vary a lot more than incomes do from region to region. A median home in a HCOLA is pretty similar to a median home in a LCOLA, but the prices vary a lot more than median incomes between the two locations do.

[terran]

I agree with the others that all that matters at the end of the day is the total amount you can save while paying for the lifestyle you want.

That said, I think this whole idea of adjusting salary for cost of living is crap. Employers are paying for a product (you) and that shouldn't be effected by which remote location you're doing the work from. If they want to say remote gets paid less because it's less productive (debatable, but whatever) then fine, but otherwise they shouldn't care where you work from. Cost of living adjustments are a total BS argument. I would start looking for remote work with a company that doesn't pull that crap.

[MrThatsDifferent]

Agree with what everyone has written here. You’re right to feel,aggrieved, it’s an annoying practice, however it does make some sense as your company is paying more for the Bay Area salaries because it has to, and if you’re not in that particular area then it shouldn’t pay more. However, once a salary is set, it shouldn’t be reduced. There’s little sense in fighting it unless you want to get into a war with your company. So, make peace with it or find another role.

However, I think that it really will balance out for you as you should be able to reduce all other costs and access those things that have value to you. Let that be your focus and put your energy on what you will gain because you have an organization that lets you pull this off. Also, run the numbers so you’re using data to support your thinking. Figure out ways to get the most out of it. And no, I don’t think it will impact future raises, your baseline has just be reset slightly. You can and should only go up.

[RainyDay]

Are you planning to eventually go back to a HCOL area?  I know it can be hard to predict, but I don't know too many people who move for a better quality of life and then later decide, "nah, I like the suck factor I experienced before, I'm moving back." 

Also, it's not just housing prices, as others have mentioned.  If you're moving to a rural area, almost everything is cheaper...home repairs, cleaning services, lawn care, county taxes, vet care if you have animals, etc. 

[LightStache]

What do the numbers say? Every time I've considered a move like the one you're discussing, I model it out and then decide.

You say that your salary will go down $20K-$35K. There's a huge difference if you're starting at $250K and going down to $230K, which would be a definite "go", or if you're going from $100K to $65K, which probably wouldn't pencil out.

[Freedomin5]

I recently took a lower paying job. Keep in mind my goal is to FIRE. My decision process went like this:

1. Will my dollar amount saved remain the same or increase?

Basically, once I factor in lower expenses, the dollar amount I was saving each month increased.

2. Is there the potential that this job will be a stepping stone to the next job? Am I still climbing the corporate ladder?

For me, the answer was no. We are pretty close to FIRE and I plan to stay at this job for the rest of my short-lived career. So it didn’t matter that the salary was lower because I didn’t need to use it as a starting point for negotiations for a future job.

3. What are the non-financial benefits for taking this lower-paying job?

This is where I listed out lifestyle benefits.


I would only consider taking a lower paying job if the actual dollar amount saved increased and if I was on my way out anyway. Otherwise, I would simply look for a job with the same pay (or higher) in a lower cost of living area.

[wealthviahealth]

All great points thanks folks. In this case- Im keeping my same job/role/responsibilities- just moving locations and luckily already a remote employee. I think that my dollar saved/invested per month definitely will increase and since this is also "home" as far as family as concerned, I will also be saving a few $k a year in travel costs home.
I have been interested in entering the rental property game as well and this is now a new reality as far as affordability and being able to own/rent out my own place during my weeks of frequent travel as well.
Some of the unquantifiables that I will also now have:

Near family and friends
Better access to nature/ year round hobbies
better sense of community
Less worry about $$$ since not reliant on job to pay astronomically high rent like in the Bay Area   
Higher income than the general population in my new area ( is this something people consider a pro/think about?) in the Bay Area you could often feel like a peasant in comparison to some of the uber rich in tech.
Easiest airport of all time to navigate/ 15 mins from home. One of those where you get dropped off and are already through TSA in under 20 mins.

[Freedomin5]

Im keeping my same job/role/responsibilities- just moving locations and luckily already a remote employee.

Wait...I don’t get it. You’re already a remote employee, and you’ll be doing the same job. So why would the company insist on cutting your pay? Where you live and how much rent you pay or don’t pay should have no bearing on compensation for the work you do for the company.

[terran]

Im keeping my same job/role/responsibilities- just moving locations and luckily already a remote employee.

Wait...I don’t get it. You’re already a remote employee, and you’ll be doing the same job. So why would the company insist on cutting your pay? Where you live and how much rent you pay or don’t pay should have no bearing on compensation for the work you do for the company.

Some companies say it does. Last I head Facebook is even planning to track where their employees are using their own technology to enforce it's cost of living adjustment policies.