It depends where in Texas. More importantly, it varies dramatically depending on your spending pattern. For example, a person who saves little and prefers to live in extravagant housing might financially benefit from living in a lower cost of housing area. The cost of housing delta is likely to be far greater than the listed (150-133)/150 = 11% average difference in cost of living. However a person who saves a large portion of earnings and lives frugally in basic housing might financially benefit from the higher salary in high cost of housing area.
Of course there area also many factors to consider besides just highest long term financial gain. For example, I live an area with in my opinion the best weather in the United States, fewer crowds than big cities, many hiking trails and dog parks, etc. Iâd be reluctant to move to both Seattle and areas of Texas I am familiar with, including if I was offered a job at substantially higher salary.
If you look at reports of average reported earnings across the full industry for similarly titled entry level IB positions, average reported earnings are much higher in NYC than Charlotte. The difference in average non-base pay is particularly notable. There are also a larger number of higher earnings positions in NYC. Certain specific companies may offer equivalent base salaries in NYC and Charlotte. However, I think itâs fair to say that 6-figure salaries right of undergrad are rare (across all industries, not just IB) and primarily occur in very high cost of living areas.
Yes, the overall percentage of 4-year grads who have a six figure starting salary is extraordinarily small. However, there are a small number of industries in which six-figure starting salaries in very high cost of living area are fairly common. In previous years, this has included CS majors working in SV, Seattle, NYC, ⊠While there are many reports of FAANG and other tech companies struggling, there are also plenty of companies that are enthusiastically hiring both new grads and experienced employees. Recent reports suggest an unemployment rate of only ~2% for software developers/engineers.
Iâm talking about the banks I am familiar with. Incoming IB analyst pay is exactly the same across all of their offices (signing bonus, base, bonus potential), regardless of location. There are more available jobs in places like NYC as composted to Charlotte though.
Cost of Living index is just an index. It doesnât represent how anyone actually spend her/his money on. Its biggest contributor is the cost of housing. How much someone chooses to spend on housing can vary a great deal. A person who earns more has the option to spend a smaller portion of her/his income on housing than someone who earns less. Greater income also allows someone to potentially do things outside her/his local area (e.g. travel) that someone with lower income (at a lower cost area) may not be able to afford.
And the indices donât account for the reality that a young person working for a company which has a generous healthcare plan⊠likely has minimal health care costs. A 59 year old who works a cash register at a retailer? An increase in health care costs in his/her region is likely going to hit him/her in the pocket. A 23 year old with no pre-existing conditions or dependents? Health care costs- even when skyrocketing- likely not a factor at all.
People prefer nyc in this industry because that i where they have the most visibility with senior management, and the most opportunities, regardless of cost of living. In fact the nyc office tends to be one of the most competitive positings in management consulting and banking.
Some things cost the same no matter where you live - federal tax rates (although you may get a bigger deduction for SALT payments), mortgage rates, student loan rates, car loan rates, etc. High COL areas may also have lower costs for airline tickets as they have multiple airports and more competition for cheaper fares.
When I moved from California to Florida, my rent for a similar sized townhouse was $700 less, but almost everything else cost more except state taxes deducted from my check; no income tax in Florida but Florida taxed EVERYTHING else so not sure how much I saved. My federal taxes went up many thousand dollars because I didnât have that state income tax deduction.
And my COLA (I worked for the federal govt) went down about 15%. I didnât really notice that big of a difference in my disposable income. I was getting a 10% match to my 401k, so that amount went down too. Many things stayed the same like the amount I paid for health and dental insurance, anything I paid for extra life insurance, so it was actually a higher percentage of my Florida lower salary (COLA) than in California. If I would have lived in San Francisco, the COLA is about 38%, so paying that insurance bill would have been a much lower percentage of take home pay.
But yes, getting a six figure salary out of undergrad is still a nice, nice thing.
The rates may not be the same, and the net costs often are not. For example federal tax rates often become higher as salary increases. Mortgage rates may also increase with higher housing prices due to worse debt-to-income and other factors. Most young people who live in high housing cost areas choose to rent. If the young person is trying to buy, they may be forced to resort to things like PMI, which can have more drastic long term implications. Even when the rates are the same, obviously higher income and higher housing costs can lead to larger net taxes or larger housing expenses.
I agree that there are things that are the cost the same or less in high (average) cost of living areas, rather than everything universally costing more in high cost of living areas. For example, I live in a high cost of living area, yet according to MInt, my net cost for electricity + gas (heating, not car) in 2022 was under $100 (average under $10/month). Heating/cooling costs would be far higher in almost any low cost of living area than in my high cost of living area. My largest expense on my take home pay was property taxes. The high housing costs contribute, but my property tax % rate of 0.48% of home value is lower than would occur in the vast majority of low cost of living areas. In some lower cost of living areas, I would have higher property tax, in spite of a lower home value. My gardener charges far less than is common in many lower cost of living areas, including where I grew up in upstate NY, which probably relates to a larger supply of available gardeners. Much of my shopping was with online retailers who charge approximately the same rate (taxes and shipping may vary), regardless of buyerâs location. I invest the vast majority of my income, mostly in index funds. The charges and returns (prior to withdrawal) would be approximately the same percentage, if I lived in other locations.
I could move to a lower cost of living area with the same salary since I work fully remote and can live anywhere with an internet connection, yet I still choose to live in the higher cost of living area. Nearly all persons prefer living in specific locations for reasons other than net financial return. Examples include being near by friends/family, not wanting disrupt life/family, wanting to be near arts/entertainment/dining, weather and availability of outdoor activities/sports, etc. The personal value of these preferences can far outweigh typical location based salary differences.
Comparing salaries for job offers in different states can be a complex calculation, far beyond a simple cost of living is x% less in city A than city B.
I was just reading an article about net inflows/outflows of affluent taxpayers, and Steve Rattner was just on MSNBC this morning with a piece about population movement and relative tax burdens. I couldnât relocate the article, but the gist is in this link. Where High-Earning Households Are Moving - 2022 Study - SmartAsset
With the increased ability to work remotely, high COL and high tax states are going to need a way to stem the outflow. One of the concerns Rattner pointed to for New York was how a small sliver of millionaires contributed a hugely disproportionate amount of tax revenue. California was in better shape because outflows were better balanced by inflows and the creation of new wealth (mostly tech). California also has its advantages in climate and natural beauty and diversity (ocean, mountains, desert all within a couple hours of major cities). Rust belt areas, not so much.
Many industries, especially the ones that undergo constant changes and face disruptive innovations (which also tend to pay their employees more), like to congregate for a number of mutually reinforcing reasons:
New ideas tend to spread by word of mouth in formal and informal settings when people gather, even in this internet age. It may be too late by the time these ideas are widely spread via electronic media.
Employers in such industries like to be located in places where the talents they need are more concentrated. Even if they can locate talents elsewhere, many wouldnât be willing or able to relocate.
Employees who want to work in such industries almost always find opportunities more plentiful in areas where there are lots of employers in these industries. The competition among employers for talents means they can advance their careers more easily.
However, employers often require employees to sign non-compete agreements as a condition of employment, limiting competition among employers for employees. In California, such agreements are unenforceable, which may have given that state an advantage over most other states in this area (e.g. enabling the growth of Silicon Valley).
Even some big earners are looking for tax breaks. Phil Mickelson was looking to leave California as he was getting hit with state taxes on his earnings. Many professional athletes live in Florida so while they may have to pay California income on winnings at Pebble Beach, they donât get hit with all their income being taxed there (although they might get a credit for taxes paid to another state)
I think states will be looking for income taxes from people who had physically moved to their state even though the office the person was tied to was in another state. They want the car registered in the new state, they want the employee counted as a resident of the new state.
Companies are being VERY careful about residency/domicile.
Itâs not just that the states are looking for income tax- itâs that the penalties on an employer who is enabling tax fraud are pretty onerous (state and federal). âBack in the dayâ a company just declared anyone with âsquishyâ residency a contractor and issued a 1099. But do that too often and itâs an invitation to an audit which wonât end well for the company if the employee is- in fact- an employee and not a contractor and has not being taxed appropriately.
Iâve always replied to salary threads that compensation varies widely. Many say that there exists a singular package that everyone gets - not so. What pay one gets is based on many factors. Optimize your skills - get paid more!!!
There is a wide variation across different companies, partially because a good portion companies list too wide a range, with a highly variable maximum. For example, Netflix is listed as one of the companies with the highest reported salary. The reason for this is (all of?) their tech job postings say.
âThe overall market range for roles in this area of Netflix is typically $90,000 - $900,000â
$90k to $900k is too wide a range to have any meaning. Netflix may be meeting the legal requirement of listing salary range in job postings, but are not meeting the spirit of the requirement.
However, other companies like Space X list a more narrow range that is more meaningful. A quote is below:
Pay Range:
Software Engineer/Level I: $130,000.00 - $155,000.00/per year
Software Engineer/Level II: $150,000.00 - $180,000.00/per year