Even though most people know the “value” of salary can change depending on the city they live in, the other benefits offered, equity, etc., too many still focus on what I call the “unweighted salary”. So today, I thought I’d give you a framework to think about your salary’s true value. That way, the next time you’re given an offer, you’ll be in a better position to evaluate it.
Step1: Account for Cost of Living.
Let’s say you’re living in Nashville, TN making $70,000 a year and you’re then offered a job in San Francisco for $120,000 a year.
But remember, San Francisco is one of the most expensive cities in the country. So, go to Paysa’s cost of living calculator to compare monthly costs (housing, food, transportation and utilities).
If you are a single and you’ve chosen to rent in San Francisco, you’ll need $4,500 to pay basic monthly expenses. You’ll need a minimum of $54,000 a year to live in San Francisco and cover your basic needs. In comparison, basic expenses for Nashville are $26,400 for a single person in a year.
The math isn’t too complicated to determine the relative value of salaries. First, separately calculate the disposable income for both cities, which is living costs subtracted from salary. For the San Francisco job, subtracting 54K in costs from your 120K salary, will give you $66K to spend. For Nashville, subtract your 70K salary from $26.4K living expenses and you’ll have $43.6K to spend in Nashville. Next, subtract the disposable income for both cities (66K – 43.6K) and then you’ll know your raise. That means, in effect, you have a $22,400 raise by factoring in cost of living.
As a quick caveat, a cost calculator is obviously an estimate. If you really want to get to the exact numbers, track all your spending over a month. Then look up what all those expenses would be in your new city. You can then extrapolate that out to the rest of the year (and don’t forget about state taxes).
Step 2: Look at Your Equity.
Equity is stock or stock options, which you usually are able to exercise after working somewhere for a certain amount of time (4 years). If you need help analyzing the value of your equity, we’ve put together a guide for you.
Step 3: Look at Your Benefits & Company Perks.
Health insurance, gym, vacation plan, and anything else that the company may offer as a benefit are all part of your compensation package.
But be honest about which perks matter. For instance, if you never go to the gym, are you really going to start just because the company gives you a gym membership? If you’re not using it, it doesn’t add value to your life. If it doesn’t add value to your life, it shouldn’t factor into your compensation evaluation.
Step 4: Factor in Intangible Perks
Calculating the value of hard-to-measure perks is a bit tricky. First, make up a list of all the intangible variables that matter in your job satisfaction.
- Career Growth
- Flexible Hours
- Commute Time
- How much you like the work
- The people you will work with
- The level of stress
- Hours per week you’ll have to work
- Amount of travel
- Ability to work remotely
Obviously, if you prefer to focus on tangible value, you might want to skip step 4. But this is a way to take a holistic look at what the job is offering you.
Salary can be desirable or not as much after you factor in cost of living, equity, benefits and pros and cons of the new job. You may find yourself choosing quality of life over a generous salary. Or you may realize that you want to get paid more, at a level of what you’re worth.
Author: Chris Bolte