Your money goes much further in some places vs others so before you take that job in San Francisco take a moment to read this.
Cost of living and income are two words that every adult is familiar with. One deals with how much you spend monthly or yearly, while the other is how much you earn. Usually, most people believe that having a good income is more important than the cost of living, but this isn’t true.
Cost of living is as essential as the amount you earn because it determines whether your salary is enough or you need more. This article covers why the cost of living is as important as income.
The cost of living is the amount of money needed to cover basic expenses in a specific place and time. Typically, it includes:
The cost of living differs from city to city, so you need to calculate the expenses and whether your income can sustain your lifestyle. If you live in a place where the cost of living is high, your earnings should also increase.
Knowing the cost of living in a city or state helps you determine whether you should move there. For example, suppose you were considering a career change or your company opened a new branch in a city and wants you to move there. However, the cost of living there is higher than in your current location, and your company is not increasing your pay.
In such a scenario, you will most likely be unable to maintain your lifestyle. However, according to the compensation consultant William J. Erdle, most companies do not factor in living costs in their pay program.
So, you can live in a place with a high cost of living index and still receive low pay. Let’s go back to the scenario above. If your income was enough where you lived before, and you had enough for your savings account and 401k account, it might be inadequate when you move.
In a city with a high cost of living, your supposedly high income may only cover the basic expenses, and you’ll have next to nothing for your savings. So, don’t just consider your income; compare it to your living expenses.
Generally, employers are not obligated to pay a salary equivalent to the cost of living. However, there is a minimum wage required by law that they must adhere to. Once they do, they do not have to increase your pay to match your expenses unless there’s a stipulation in the employment contract.
Therefore, it is up to you to consider if your income will sustain your lifestyle compared with the cost of living. So, before accepting a new job offer in a new city or relocating for other reasons, negotiate a salary commensurate with the living cost. Also, request a clause for increased pay whenever the cost of living increases.
Don’t just focus on your income without considering the cost of living where you live or want to move to. If you do, you’ll find yourself unable to maintain the life you always had. So, always give them as much attention to the cost of living as you do your salary.
If you need more help understanding the impacts of the cost of living on your income, our team at Adultology can guide you. We provide training that equips people with the skills to navigate adulthood.
Start exploring our courses today.
Categories: Financial Planning and Investing, Getting and Managing a Career, Getting a Home