I hate these reductive COL adjustments. They're preposterous.
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?
It's not preposterous within a certain income range. If your household income is $300,000 in SF (for a married couple), your net pay is about $14,800 per month. If it's $150,000 in Kansas City, MO, your net pay is about $8,600 per month. So you're talking about an $6,200 per month difference.
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.
> So housing alone almost completely wipes out your extra income.
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.
I totally disagree. Housing is such an over riding cost that no amount of things you can buy on Amazon will save you. The housing prices are rising so fast in SF that it makes estimates like this one LOW. you would be unlikely to save any money at all living in SF on 150k but Kansas has such a wide variety of hosing options that range form super cheap to substantially affordable that you could easily save as much or more that if you were living in SF on double the salary.
Edit: for the record I don't live in and have never been to Kansas City.
> you would be unlikely to save any money at all living in SF on 150k
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.
You must be young, and have no dependents. Also taxes alone on 150k must be close to 1 third of your income so based on that alone I'd be skeptical of someone who claimed they could save 100k per year on 150k salary in NYC.
> 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.
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.
I have a good CPA and am very aggressive with putting all my savings into tax-advantaged accounts. Admittedly my actual income ends up being more than $150k/yr thanks to capital gains and some freelance work. Looking back on the years where I was just a straight salary worker (earning $150k/yr) my annual savings were closer to $60k.
> But you can still easily get a solid apartment for $3k/m.
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.
If you're single and make $150k/year in SFO, you only have $110k post-tax income or so; a bit higher if you are putting money into a 401k. There's no way you can be saving $100k/year at that income level.
Is this pre-tax $150k? I'm also in NYC, but taxes alone are almost 50% of my salary. Plus ~$3k a month on an apartment, you can't really save much on $150k.
> I made $150k/year in NYC and managed to save almost $100k/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?
Housing is generally an investment, so what I'm dumping in my mortgage, I don't have to dump in retirement funds (assuming im planning on selling the place and moving out when I no longer care about big cities). So I literally don't mind dumping a million+ in my condo.
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.
A single property does not make a good substitute for a retirement fund. There's a reason why retirement funds allow you to invest in a diverse set of bonds with different rates of risk and across different industries. Putting all of your eggs in one basket is a stupidly risky move.
It's not my only egg. My only point is, spending a large amount of money on a home is not necessarily just a net expense, and is actually very frequently (in those cities, SF, Seattle, NYC, Cambridge/Boston, etc) a "profit", even after interests on the loan.
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.
When housing is the overriding factor in COL differential (as it tends to be in the Bay area relative to other locations), you probably need to look at something after-tax pay less mortgage/rent for a house/apartment where you're realistically going to live in the respective areas.
Clearly there are other cost and quality of life tradeoffs to consider, but the above gives you a pretty good baseline to work off.
I've been looking at a move from a very low COL area to a very high one, recently, and this is spot on. But there's one huge caveat: you have to be willing to sacrifice on housing.
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.
That's one of the reasons that COL factors, by themselves, don't mean an awful lot. If I were to move into a city it's clearly not even meaningful to talk about the price of the equivalent property to my exurban house on a fair bit of land. The relevant comparison is to what I would/could realistically and at least somewhat contentedly live in.
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.
>If I were to move into a city it's clearly not even meaningful to talk about the price of the equivalent property to my exurban house on a fair bit of land.
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.
This adjustment is on the extreme end to be sure. If you make 80K where I am and live in the square footage I do, a comparable place in SF is around 3K* more expensive per month. So there's a very real, ~36K negative adjustment to that 120K SF salary for me.
I really think GP is oversimplifying, and I have lived in economically disparate areas with the same salary in each. I moved from southern California where I made roughly $60k. Then I move to the Southern US. I changed industries and settled in at $50k.
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.
His point is that commentary on the cost of living tends to oversimplify. Different regions don't just have a linear multiplier that applies to all expenses, but that's what these surface-level shallow surveys tend to imply.
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.
You must have an insanely huge apartment for rent to increase by $4k/m by moving to SF. But even assuming that -36k adjustment, you're much better off making $150k in SF than $80k in Kansas City.
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.
In many places in the US you could easily rent a 3 bedroom house with a 2 car garage for $1000. Guess how much a 3 bedroom house is in San Francisco.
>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.
In my case, 2000 square foot house in St Louis with a two car garage. A large enough place to have children comfortably, market value about 200K. I am working remote for a SF company, and I looked at relocation. Anything even remotely equivalent was a couple of million. That's way more than 5K difference a month right there.
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.
>You must have an insanely huge apartment for rent to increase by $4k/m
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).
> No I don't. I have a wife and 2 children who if I can afford to give them their own room, I will.
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.
> 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).
> 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.
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.
> Even if you assume that all your expenses are linearly multiplied
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.
It isn't the things that you buy that linearly increase (as you correctly pointed out) as much as labor, and any thing/service that has a large labor component.
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.
> If you were living on $40k/yr in Kansas City, you could move to SF and suddenly be saving $80k/yr
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.
It's as though people think that a car costs 45% as much in Kansas City.
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.
I live in NYC and I cannot speak to SF. But perhaps the NYC figures will provide insight. In short YES the car DOES cost 45% as much. My monthly parking cost is $520/mo (with another per-use fee if I take my car out more than twice a week.) The $520/mo is more than my $300/mo car payment. I dont know how much parking costs in KC but i'd venture it is near-free.
Oh, and this is just the monthly cost at the apartment building, not for destination costs which are separate.
Or you can live in NJ and commute in. NYC is substantially better in the range of options across distance/cost/space than (from what I know/have heard about) SF.
Sure, and how much does your apartment cost? People in SF and NYC always seem to forget to factor in the price of admission (i.e. the efficiency apartment that costs 2x my mortgage) when bragging about how much money they're saving without a car.
I have to assume you're trolling at this point. The quality of public transport varies massively between cities.
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.
> 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.
This comment is exactly on point. I also used to think you could go without a car...then I had two children. Taking one infant or toddler on the subway was difficult. Taking two were nearly impossible. Many stations have no elevator, so you lug the stroller+child up and down stairs and hope someone helps you out. Uber? Not so much -- it is illegal to have a child in a taxi w/o a car seat. We used to carry around a child seat on our storller. Then we had two children and it is literally impossible, so we purchased the car.
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.
> I think you've actually got this backwards. People in NYC would prefer to own a car, just like everybody else in America.
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.
>Have you considered that there might be people who don't fetishize cars like you do?
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.
You literally just assumed that millions of people would rather own a car but are forced not to instead of considering the possibility that some people simply don't want to drive.
That doesn't make me a car fetishist anymore than noticing that most people are religious makes me a believer in the afterlife.
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).
Maybe--depending upon your commuting and family situation and what compromises you're willing to make. However, NYC (esp. Manhattan/parts of Brooklyn) is a qualitatively different situation with respect to car ownership and public transportation--and just the culture associated with them--than pretty much any other US city.
I think generally when people respond with COL they are attempting to make themselves feel better about their life's insecurities. --- Such as the fact they don't live in SF or make that much. Best to ignore it, or state that the COL around SF is not as high, such as in Fremont.
It doesn't cost me any more money to by shares in an index fund from Seattle than it does from Kansas City, or Minneapolis where I graduated.
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.
https://www.wolframalpha.com/input/?i=$80000+salary+Kansas+C...