Higher cost of living equal more money in the long run?

[eric-holmes]

I drive 45 minutes to and from school each day. During my drive to school is when I usually do most of my thinking. Mostly because it's early and I hate driving to school. Today I had a thought cross my mind.

Do people able to afford nicer things where cost of living is higher?

Here is my thought process and I will try to explain it as best I can over the internet.

I live in AR. I am going to compare myself to someone living in CA in a COMPLETELY hypothetical situation.

Let's say I make 40,000 dollars a year. That is roughly 3,333 dollars a month. Subtract 1,000 for a house, 1,000 for car and 500 for odds and ends. that is roughly 833 dollars left to be in the plus.

I move to CA and start working the same job is in AR. I get paid upwards of 70,000 yearly. 5833 dollars a month. Subtract 2,000 for house. 1,000 for car and 1,000 for odds and ends. That leaves me with 1,833 dollars monthly.

I doubled my house payment and utilities to compensate the cost of living. I also left the car payment the same because I believe they cost the same everywhere in the US. Correct? So In the long run, do you have more money left over at the end of the month if you live in a place with a higher cost of living? That would leave you with a lot more money to buy other things. A D3 costs the same in CA as it does in AR.

Sorry if that makes no sense whatsoever. It was just my daily communal thought and I wanted to share.

 

[usayit]

Do people able to afford nicer things where cost of living is higher?

Not that simple. This coming from a person who moved from TX (relatively low cost of living) to NJ/NYC area (high cost of living). You are missing lots of variables and consideration (including TAXATION). $2,000/month for a house in certain parts here (CA is worse) is CHEAP. In some cases, $2000 a month is rent.

- Taxation at all levels (property, local, state). I'm classified as "wealthy" and taxed heavily but I can only afford a 2 bed room, 1 bath, 1/8 acre starter home that hasn't been renovated since the 1920s. Property tax is averaging here in the $7300 per year.
- In my area, I would need $300-400k to move up into the next size home in a decent area with good educational system.
- Car insurance. Easily $3000 a year for single vehicle.
- Any cost if you hire anyone to perform maintenance on anything you own (car and house). Even local garages can approach $100/hour.
- Assumption that you can get $70,000 a year. Not all jobs can demand the salary difference between two areas.
- Day care up here is $1200-$2000 a month (if you have children).
- Utilities are more.

and I'm just scratching the surface. Its a very complex calculation.. even then.. simply a guess. Sometimes it works in your favor and sometimes it doesn't. Often the difference is more than what is compensated in salary (HIGHLY dependent on career/job choice). Check online calculators and salary web sites... even then.. I found them only hitting a ball park figure.

Simply put... everyone around you will need more to maintain a certain level of lifestyle. That pretty much means goods and services across the board (not just simple necessities) are increased. In my case, I'm also competing with New York City with an even higher salary base just a few miles away. Sellers sell goods and services at the highest the market can withstand. Unfortunately, this local NYC market can withstand higher than I.

 

[Light Guru]

Your math is off. There are a lot of things you are not factoring in.

Someone making 40,000 a year is NOT taking home 3,333 a month. Have you not heard of Taxes. Plus there are other deductions that are taken out, your share of health benefits, 401k etc etc.

Your 500 a month for other is quite off also. Cell phone, groceries, utilities, Internet. You say your in school so I'm betting you have some student loans that will need to be payed.

How are you figuring that you will make that 30,000 more a year else ware doing the same job. That number seems vary off.

Perhaps you should be listening to the Dave Ramsey Show Podcast during your drive.

 

[reedshots]

I understand your thought process but like usayit said there are so many more things you left out. the high cost of living applies to everything in that area - utilities, gas, taxes, and yes the cars are probably the same price but all the things that go with the buying of (lot sold) cars would be a lot higher. There for you might need twice or three times as much in one area then another.

 

[Josh66]

Higher cost of living does not always mean higher pay - it depends a lot on what you do.

And, like usait said - you forgot to factor in taxes. If you had $3300 a month, paid 1k for rent, 1k for car, 500 for food, gas, and beer - you would be $2-300 in the hole.

 

[usayit]

I just used salary.com to calculate Little rock -> San Francisco, for $40k

Cost of living 82% higher... so you'll need $72,896 to maintain the same level of lifestyle

BUT

The typical employer only pays 34.4% more between the two areas. You are SOL $20k negative

 

[molested_cow]

There is only one question to ask - Are you happy?

When I graduated, most of my classmates left for NYC for the hip and promising vivid lifestyle of being an artist/designer. They feel that NYC's the place where talent gets stimulated and seen.
High rent, low quality of housing, noisy environment, chaotic streets, hot humid or cold and wet, long working hours with low pay. Tell me if that is what "hip" and "promising".
For me, I appreciate the fact that I can get to the nature, or the woods if you will, under 30min of driving. If I lived in NYC, it will take like 2 hours of train ride. So in a way, I feel like I will be living in a big prison because it takes so much effort just to get out of it.
Of course, that's just me. Some people like the city buzz, just not me.

So when I was looking for a job after school, I had two offers. Atlanta Vs Portland, Or. The Atlanta job was semi-corporate. Environment is suburban but close to the city. The Portland job is some hip and famous consultancy, in the middle of Portland. The Portland job offered $12k less, so I let them know that there is a big difference between the offers. They told me that people want to work there because of the kind of projects they do..... well, can they GUARANTEE the kind of projects I will be working on? No.
So I went to Atlanta, and Atlanta is AWESOME!!!

Between living in the city and suburbs.... For me, I hate to waste time commuting. I lived only 5 miles from the office when I was in Atlanta and 50% of the days I end up spending 45min trying to get home. That's not worth it! So I'd try to live close to work because the time you waste on one trip is 10X by the time the week ends. Plus, gas price is high now, so better save then sorry. If the public transport system is reliable, then I won't even get a car.

So ultimately, it's not really about how much you make vs how much you are paying. It's whether you like the lifestyle or not. Some hobos are more than satisfied with their lifestyle. Many millionaires are not.

 

[reedshots]

I agree with molested_cow - money is not everything / but everthing takes money. I was born/rasied in Phoenix Az. joined the Airforce and after 25 yrs now I am back. I would have loved to stayed in Mountain Home Idaho, but no real jobs there so thats why I'm back in Az. I lived in Mt Home for a total of 10 yrs while I was in, smallish town, close to Bosie, close to the mountains and just about everything eles I wanted. currently I am living way out on the west side be the Luke AFB, but there is little out here for me. no water, no tree filled mountains waiting for the market to get better and Im out of here off to where I want to be, unless my job sends me back over seas which is a posiblity.

but back on topic, higher cost of living means just that and unless you have a high paying job you just as broke if not more then in a lower cost area.
besides housing in Cal or NY 900 sq feet is around $300K other areas 3000 sq ft is around $200 K