This keeps being brought up but I'm sorry, no. The IBMer maybe has a larger house that they own rather than rent. In basically every other respect, the $240k-earning employee comes out ahead. The latter earns more, can save _way_ more, lives in an area with better weather, and can afford to retire far earlier.
Wow, that makes my 160K 1500 sq ft house in the upper midwest (with easy access to 6-figure jobs) seem absolutely cheap by comparison. Only problem is property taxes are high (4K - 8K in this area). Oh, and typical corrupt Illinois politics.
What good does that do him? One typically saves for:
- Income replacement in an emergency
- Income replacement in retirement
- A down payment on a home
- A home improvement project
- A child’s college expenses less need-based financial aid
All of these are inflated by living in a high-cost high-wage situation such that the larger balance has you merely keeping up in terms of the capabilities your savings buys you.
The extra savings only make a difference if you move somewhere cheap before you draw them down. That’s a great argument for doing a few years in SV in your twenties but less relevant for senior talent.
Having a higher income and higher gross savings allows you to invest more in:
1. Rental properties
2. Securities - stocks, bonds, derivatives, REITs etc.
3. Investment opportunities not available to others. The $250k-earning employee (sorry, yeah I bumped it up $10k to make this argument) is an accredited investor.
All of the above have compounding benefits over the years. Investing $25k today is better than investing $5k, even if both are 10% of gross income of our example employees. $25k savings allows you to put a down payment on a $125k rental property in a low-cost area every year.
> All of these are inflated by living in a high-cost high-wage situation
The "high-cost" only applies if you insist on living the exact same lifestyle as you would in a low-cost area: large house, boat, large vehicles etc. It's just common sense to limit your spending on overpriced things. In the Bay Area, housing is overpriced.
It’s just common sense to compare like with like. The appropriate comparison to a shared apartment with a long public transit commute in SF is the same lifestyle in another city. Which may not provide as much investment income, but is so incredibly cheap you could achieve FIRE or be an artist or whatever.
> It’s just common sense to compare like with like.
I guess we should agree to disagree :-). I think you should adapt your lifestyle to the area you live in. Here's an analogy: let's say I love fresh sushi. If I live near the coast and a healthy fishing industry, it'll be good and cheap. If I live in Las Vegas, it can still be had but it'll cost me. Do I keep up my expensive sushi habit in Vegas and complain about the cost-of-living? Or do I just eat less of it and accept that there are benefits to being in Vegas that outweigh the more expensive sushi?
Besides that, no $250k-earning employee is living in a shared apartment with a commute to make ends meet in SF. If they live that way, it's to maximize their savings.
Vegas provides plenty of dining and entertainment options to make up for lost sushi. It’s not worse, just different. The anolgoue in SF lifestyles would be a high-rise condo instead of a house, proximity to transit instead of a nice car, etc. The frugal options in SF are not just different, but straight-up worse.
When a majority of that $250k is in Monopoly money (i.e. most of the time), they absolutely are.
My family of four live on that FBer's income in a nice single family rental and still save over half that IBMer's gross income. I can mortgage a multi-family dwelling in the Midwest every 4-5 years or so, invest in stocks/index funds, and generally do a lot more than the IBMer will ever be able to.
