Author Topic: Help me decide: higher salary and higher COL vs lower salary and lower COL  (Read 4811 times)

firelight

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DH and I live in San Francisco and make a combined 320k before taxes. Recently we had a baby and now have an opportunity to move to a lower COL area for 120k before taxes. We'd be saving around $45k after taxes if we move to the lower COL area. We can cut even further but this is a conservative estimate. Work and career opportunities aside, I'm not sure how to compare both from a numbers point of view.

We'd be losing around 200k in salary. But because of our tax bracket, a lot of the 200k goes to taxes. Adding in ca state tax, we pay close to 40-50% on the 200k.
If I were to calculate the savings we make from the move and add taxes to it, it comes close to 80-100k. Are my assumptions correct?

How do you compare two salaries and expenses in different cities?
   

firelight

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #1 on: December 30, 2014, 02:15:28 AM »
To add, we'll get to spend more time with baby at the cost of slower FI... Which is a trade off I'm willing to make. If the numbers make sense and some things fall into place, I'd love to make the move despite doubling our FI date.

We currently have 500k net worth and aim for 1.2M+ for FI. I estimate we'll FI at current salary in 8 years. Is my assumption that we'll double our FI date correct?

marty998

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #2 on: December 30, 2014, 02:55:23 AM »
I earn 1/3 of what you do and I expect to go from 500 to 1200 in 8 years.

Just because you live in a high COL area does not mean you need to have a high COL lifestyle.

I mean how much more is food, gas, electricity, water, other bills, buses/trains etc in a high COL than a low COL? 10k? 20k per year? It's not as much as you think.

Stripping out housing of course which you should be able to smash out quite quickly on your income

NICE!

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #3 on: December 30, 2014, 03:04:58 AM »
It sounds like you've already made the decision, you just want confirmation. I agree with your decision - go LCOL and spend more time with the baby.

One of the main reasons I say this is that your stash is likely close to big enough as it is. That is to say, if push came to shove you could probably live on 4% of 500k. You definitely could do it if you picked up a low-wage 40 hr or less per week job. In all likelihood, none of this will happen and you'll continue to pull in great salaries.

The other main reason I say it is because, based upon historical market returns, you should be close to doubling $500k in 8 years based upon investment returns alone. If you invest the $45k at 7% for 8 years with what you already have, you'll overshoot your $1.2M by a cold $100k.

So, go ahead and do it. The numbers work as far as I'm concerned.

If you want the counterpoint, you could stay in the HCOL for a couple of years longer to pay the stash and then move, but who knows whether the opportunity will still be available. Also, 2 years will have passed in your child's life.

marty998

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #4 on: December 30, 2014, 03:18:58 AM »
Reading your journal now....

4 hour commute for your DH and you're paying $2400 a month for a nanny.

So you're essentially paying $2400 x 12 / (1-tax rate) = having to earn 50-60k? for the nanny? And your husband doesn't really see his kid because of the commute.

You said long term you cannot see yourself living in the bay area. I suppose all I can say is why wait for "long term" to come around?


afraz

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #5 on: December 30, 2014, 05:39:41 AM »
It is clear in principle how to compare the low COL and salary to high COL and salary.
The only number that matters is how much is left in your bank account at the end of the year. IE how much can you SAVE in that year.

EconDiva

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #6 on: December 30, 2014, 06:05:48 AM »
Very non-analytical response coming:

You can run all the numbers you want but at the end of the day you can't put a price on the time spent with your baby. 

In a case like this where there are two incomes and in both scenarios posed, you will still be living comfortably, saving, and preparing for a FI date that both you and DH and comfortable with, I don't see much value in comparing how much you'll lose out on by going with Scenario 1 if you have already decided Scenario 2 is what's best overall for you and your family. 

Best of wishes in your decision.

Pigeon

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #7 on: December 30, 2014, 06:07:16 AM »
For me, the lower COL area would be very attractive if it comes with a slower lifestyle, especially with kids.  Personally, school districts and housing play a large role in my budget and in my decision making.  I want my kids to have excellent public schools, and in my experience, in high COL places, that has meant that housing costs are through the roof.  But I know very little about SF.

Neustache

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #8 on: December 30, 2014, 06:12:21 AM »
Just read your journal.

If it were me...lower salary and lower COl hands down.  However, you are not me.  After reading your journal, I'm not certain you'll be happy with that.  I would be, though, but I'm the type who has foregone career and salary to stay at home when my kids are little.  If you can slow down and relax enough to make the move worth it, then do it.  If not, I don't see the point. 

firelight

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #9 on: December 30, 2014, 09:23:29 AM »
Thanks for the replies. As you guessed right, I'm leaning towards lower COL area even if it meant slower FI. However, two issues are making me pause: I have it very good at work: though its stressful, its an easy job with lot of benefits. I don't know if I can come back to this job or this company again if I leave.

Second, my goal is to homeschool kids with a lot of travel thrown in. So we were pushing for a faster FI at an earlier date.

Also, I'm wondering if its psychological. I've been earning ever since I turned 15 and it's very hard and scary to see my part of paycheck go from 200k to almost zero. I do have plans for part time work, but these are plans at best now. How did you overcome the psychological barrier?

Pigeon

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #10 on: December 30, 2014, 10:22:27 AM »
So are you not going to be able to work at the new location?  Is your partner bringing in all of the $120K at the new place, as you say your salary is going to be close to zero?

Personally, that changes the equation for me.   Unless I had genuinely reached a comfortable FIRE, I am unwilling to put myself in a situation where I am much less capable of being able to support myself and the kids if need be.  I've seen too many women whose wonderful husbands run off with sweet young things, leaving them in a bad spot.

firelight

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #11 on: January 13, 2015, 11:47:02 AM »
Pigeon, yes. I won't be working for a few years, basically become a sahm. I can do side hustles but they need to be started. And take time to reach a level where I can get decent cash flow. I'm scared but totally trust my husband and have about $300k in my account. So I feel confident I can handle most issues.

However the psychological issue of leaving work is still worrying me personally

DoubleDown

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #12 on: January 13, 2015, 12:38:15 PM »
The only number that matters is how much is left in your bank account at the end of the year. IE how much can you SAVE in that year.

+1 -- That's the financial measure right there that will let you know the tradeoffs. If you're uncertain what your taxes would look like taking the LCOL option, I'd suggest running through a tax calculator/estimator that will give you a good, rough idea.

If there is any way possible, I'd find a way to maximize your happiness and minimize your expenses while staying in SF for just a short time (say, 1-2 years). It may not be realistic, but if there's any way to minimize commutes and other negative side effects of getting the large incomes, while also saving a large portion of your high earnings, you'd have a huge win-win. If you could save about $150k a year (leaving $170k of your gross income for living expenses and taxes), then in two years you could add another $300k to your stash. A lot of people dream of having the opportunity of saving that amount of money in such a short time! After that, moving should be a lot easier. If you can only accomplish this while destroying your souls, then it's probably better to move.

mm1970

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #13 on: January 13, 2015, 01:12:59 PM »
Hm.  I read your journal too.

I see you were conflicted with you being a hard-charger, more serious, more time dependent job, and him being more laid back.

Well, I totally understand that feeling.  I've had the same feeling from time to time.  I've always been "Type A" and my husband more like a "B+", which means I'd totally work my butt off and get stressed out and do everything to make up missed time and...

Then something happened - I had a second kid, but past that - I got a new boss shortly thereafter.  And things went downhill.  I could go on and on about the glass ceiling women hit in tech.  But in my experience, it really was just this one guy (okay, maybe 2 guys).

So I tend to be risk averse when it comes to money, and I see your income at $320k and think holy CRAP (I'm also in CA, but south).  And rent at $2700 (less than our mortgage), and I would be hard pressed to walk away from that so quickly, at least not until I hit a higher savings number.  Especially if it's a job you like.

On the other hand, that commute of your husband...that really sucks.  Are you finding yourself picking up all the slack at home?  Is your company open to a part time arrangement?  While my career has completely stagnated with the new boss (he's not my boss anymore, but my career is still stagnated), I've used the opportunity to dial it back at work.  I was part time for awhile.  I'm full time now, but I'm in a fairly "easy" job, so I can work my easy hours, pick up the kids early, etc. 

But that means I pick up the slack at home most of the time.  My husband works a harder job (he's not climbing the ladder either, but it's more hours).  He gets paid more.  He goes on business travel several times a year (which means I pick up even more slack at home).  When the kids are sick, we usually split, but there is inevitably that time when they are sick on 2 different days when the husband is out of town.

I'm not sure where I'm going with this...my own personal method would be to figure out how to "dial back" where I am currently, with fewer hours/ more flexibility (instead of a huge change).  But if that wasn't possible, I'd consider moving.  Time with the kids is priceless (for you AND your husband).  But if your husband makes less and isn't really interested in "growing up" and "getting more serious", you have to consider this. It might not be that he's not "grown up" yet, it just might be his personality.  My husband would make a GREAT company VP, but he's not interested in that AND when he took his current job, he knew it wouldn't happen (the company already has 5 VPs all his age, nobody is moving out).

mozar

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Re: Help me decide: higher salary and higher COL vs lower salary and lower COL
« Reply #14 on: January 13, 2015, 06:45:38 PM »
Who makes more money? If you, with your easier job, could pay for everything and save 45k.  And you can stay at work and your partner quit their job and stay with the baby? That saves 28k on daycare. Unless you really dislike the bay area, and that's fine too. How much do you save a year now?