Finance Basics,  Other Important Stuff

Income -Where Is As Important As How Much You Earn

As an educator at a school of veterinary medicine, it always fascinates me to hear what fourth year students have planned following graduation.  For some, it’s easy. Maybe they plan on an internship – and then it’s where ever the match takes them. For others, there is a “significant other” waiting in a far away city (or waiting to move to a far away city). For many, graduation means moving back home. One thing that always surprises me is that the cost of living never seems to enter the equation.  Why is this important? Lets take Sarah. She is top of her class, personable, professional and expects to enter a general small animal practice after graduation. She gets a number of offers including:

        Table 1 Sarah’s offers

  • Miami, FL                     $80,000
  • Las Vegas, NV:            $90,000
  • San Diego, CA             $85,000
  • Phoenix, AZ                 $75,000

These offers all look similar – but are they? Actually, when we consider the cost of living they can actually be quite different. Some parts of the country – often near the coasts – can be much more expensive to live in and that means that our salary simply doesn’t buy as much. To put another way: while Sarah may be able to live comfortably in Phoenix on $75k, that same salary may not go very far in San Diego. But how can she compare how much her income will buy in varying cities? Actually, there are a number of websites that can help. Some of them, like this one on “Nerd Wallet,” are simple to use and give a summary of how much you would need to live a comparable life style in two different cities. For example to live the same life style as someone making $75,000 in Phoenix, you will need to make $112K in San Diego. Therefore, although the offer in San Diego is for more money, Sarah’s income would buy much less and her quality of life would be worse if she took the job in San Diego. There are sites that provide much more detail; for example, Numbeo can tell you down to the cup of coffee exactly how costs between two cities compare. If we look at the list above and “normalize” all the offers to Phoenix we can see how much you would need to live an equivalent life style.

       Table 2- Cost of living the same life style as $75k in Phoenix AZ

  • Miami, FL                     $90,015
  • Las Vegas, NV:            $79,928
  • San Diego, CA             $112,962
  • Phoenix, AZ                 $75,000

Looking at the numbers in table 1 and table 2, the only offer that makes better financial sense than Phoenix is Las Vegas. Even though the cost of living is a bit higher, the offer of $90K is more than compensates Sarah for the difference. Of course there is more to selecting a job than cost of living. Maybe the offer in Las Vegas is at a practice with a poor work environment and a high turn over of doctors. Maybe Sarah hates Phoenix’s dry heat and is longing for something closer to the ocean. Regardless, if Sarah plans on being able to pay back student loans, live life and saved some money for her future, it seems inconceivable that she can do this in San Diego. If Sarah must live near the water perhaps she should consider Tama FL where she would have to earn only $68k a year to live as well as $75k in Phoenix. Of course, its never this simple, but we must consider the cost of living when comparing possible employment opportunities in different cities.  Sometimes you can be surprised by the results. For example it actually costs more to live in Baton Rouge LA than Phoenix – who knew?


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