How important is location to your job choice?

We all want to make lots of money. Once we’re out in the real world and no longer have grades or teachers to tell us how we’re doing, money is the easiest yardstick to measure our level of success in the world.  With that in mind, most of us tend to gravitate towards jobs that pay the most, often without considering other factors, especially location.

Cost of Living

This is really the biggest and most unappreciated factor when most people apply for a job, especially right out of college.  We’re so used to living in dorms or apartments near campus that we rarely research fully ahead of time, and often end up quite surprised when it comes time to actually signing a lease.  Many of my friends got jobs in New York and Silicon Valley after graduating, and ended up having to spend upwards of $3000 a month.  This is fairly close to the median rent of the two cities, while Washington D.C., L.A., and Seattle are all around or just under $2000.  Over the course of the year that adds up to nearly $12,000, which on a pre-tax basis would be roughly $16k, all for choosing to live in a 1 bedroom outside of the two most expensive cities in the US.

It doesn’t just end there.  School, local taxes, food, transportation, all add into the equation as well.  Especially when looking at staying in a city long-term, the expenses start to add up and can outweigh the benefits of a higher salary.  Ahead of any big decision it’s well worth researching a loose budget to see if it’s really worth taking the higher paying job.

Earning Potential

Earning potential is the one area where cities like NYC and SF come out way ahead. Using jobs in banking as an example, it’s not uncommon for a 2nd year associate to make $200k, with managing directors making upwards of $500k.  Without being based in a big metropolis it’s extremely tough to make that sort of money, and if you’re able to live simply then it can be worth it.  This is where lifestyle inflation comes into play, and it becomes extremely important to stay away from a “keeping up with the Jones’s” mentality.

For anyone looking at job prospects, it’s worth doing research around what their trajectory is going forward.  What sort of money could I be making in two years? In five years? In 10 years?  Glassdoor offers a good ballpark estimate to see what you can expect as you move through the ranks at the company, and would be a good starting point to figure out where you’ll be going forward.

Quality of Life

Quality of life can mean different things to different people.  If you’re an avid surfer and love getting to the beach every day, then you’re going to have a pretty tough time living in downtown Manhattan.  Conversely, if you live off the energy of the city and love to go out and make lots of connections, then Manhattan may be perfect for you.  Beyond just geographic differences, it’s worth having an idea of what sort of quality of life you’ll be facing in the company that you choose as well.

In my experience, banking typically requires an average of 11-12 hours a day of most employees depending on the division, with some divisions as bad as 14+ hours a day.  It’s up to you to decide what sort of hours you’re comfortable working, and only you can know what’s best for you.

What did I do?

I chose a city that is typically thought of as one of the most expensive in the world (Tokyo), but was also able to join an industry where my starting salary was higher than most.  I lived with my parents for two years while paying off school loans, and since then I’ve been careful to limit my lifestyle inflation while still allowing myself some luxuries like a car and a trainer at the gym.  While I wouldn’t say my quality of life is as good as someone living in say, San Diego, I will say that the balance of high starting salary, earning potential, and overall cost of living were enough to balance that out.

Ultimately, it all comes down to you weighing the options and fully figuring out what the best job is for you going forward.  Worst case, there are always other jobs out there as well, but here on the Millennial Plan we like to go into things eyes wide open, fully prepared for what is to come.


The earnings side of the equation

When most people look at what it takes to be financially independent, they’ll generally look at it in two ways.  First – earn as much money as possible and eventually generate enough returns from your investments to cover your costs.  Second – focus on lowering your costs to the point where the returns generated from your current savings are enough to sustain your lifestyle for the foreseeable future.  While there’s no right or wrong answer, the online community generally focuses a good amount of time on the cost end of the equation, which in my situation, initially ended up doing more harm than good.

Typically in these scenarios, the “4% rule”** is brought up, and without getting into too many of the details just yet, the basic rule is this: if you spend $40,000 per year, then once you have $40,000/0.04 (or 40,000 x 25 to make it easier), or $1 million dollars, you no longer have to work anymore.  As soon as you hit a million dollars, you can (in theory) walk right out of the office and never look back.  Why are costs seen as so important?  Let’s say you’re suddenly able to cut out $10,000 per year in spending – now you no longer have to save $1 million dollars, and you can walk out of that office the minute you reach $750,000.  Cut out another $10k of spending? You can call it quits at $500k.  But at some point is this really realistic? 

I went through a similar exercise myself when I was planning out exactly what I needed to be financially independent.  I created a spreadsheet, monitored all of my transactions through online tools like Mint and Personal Capital, and tried to figure out exactly how to optimize all of my expenses.  In doing all of this, I honestly became a little obsessed. I became so enamoured with my budget and limiting my spending that I started to feel like I couldn’t spend at all.  I had reached a point where even saving 50% of my income didn’t seem like enough, and at times I’d forgo seeing friends or participating in activities simply because I felt like it was outside of my budget. I had gotten caught in a cycle where I was so driven to save that I was missing out on things in life I really shouldn’t have been.  

Finally, I had an epiphany. I could make more money.  It sounds stupid calling that an epiphany, but I was in a funk where it felt like no matter what I did I would be stuck getting paid the same amount for some time to come.  At that point I decided to give myself a reality check, and tried to think of other things I could do to improve my earnings.  I picked up a side hustle translating websites and in 2 hours of work I was able to cover my week’s food budget (I told you I wasn’t spending much).  I started hustling more in my actual job, pushing myself to really capitalise on as many opportunities as possible in the workplace and focused on improving the earnings side of the equation.  

With this shift in mindset, I decided to relax a little bit on the budget and made sure that I was living my life fully.  In the end, I probably added an extra $5k a year in spending, which according to our equation means I’ll need an extra $125k before I’m able to retire.  As a result of my hustle at work, I was actually able to get myself a raise which more than covered the extra spending, and now I feel like my head is in the right place to keep hustling and stay positive.  

Costs are definitely important to focus on, but I’d argue that focusing too much on the cost side limits our potential. Take the time to look through your budget and eliminate areas which aren’t absolutely necessary, but don’t lose sight of the fact that you are capable of pursuing the quality of life you deserve.  You can always lower your costs later on, but now is the time to hit the pavement, hustle hard, and focus on the prize. 

**For those of you interested in learning more about the 4% rule, check out what my friend The Mad Fientist has to say about it.