Friday, February 29, 2008

Cost Of Living in Silicon Valley #4

Having explored many of the items that will show up on the expense side of the ledger, this last post will instead focus on the income column: what can you expect to get paid and how much cash will that mean you lay hands on at the end of each month?

Firstly, some good news: in most companies you will actually get paid twice a month, not once. That helps with cash flow and, if you can reach a balance point, means one bi-monthly payment gets consumed by housing costs with the other covering all other living expenses. However, that's easier said than done, as we shall see ...

For engineering positions, expect to see salaries in the range of $100k to $150k depending upon the company, seniority, experience etc. Usual caveats: your mileage may vary so just treat these as general guidelines, advice that applies double to the next section on deductions and taxes.

As always, the web has some great resources - here's just one example - to help you find positions and to figure out the going rates. (And it's worth noting that many companies maintain their own database of available jobs, accessible via their web sites. Start there if you want to work for only specific high-end firms such as IBM, Cisco, Adobe, etc.)

OK, so let's say you are making $120k per annum, equivalent to $10k per month. How far does that get you? The short answer is "it depends". Tax rates vary depending upon total pay, number of dependants, even on the state in which you live. Take California, for example, where state taxes on income can mean losing as much as another 9.3% on top of whatever the federal taxes will run you. Add to that the mandatory social security taxes, plus whatever your employer asks you to pay as a contribution to a health care scheme, and that $10k per month soon shrinks alarmingly.

As we've seen, the government is legally able to take money from you by force but it turns out that you can sacrifice even more hard-earned cash, should you wish to, in the form of contributions to a 401k retirement scheme. These deductions are tax-deductible, and there's a maximum you can contribute depending upon age. ($15k per annum if under 50, $20k thereafter.)

Long story short, out of that $10k per month, expect the federal tax plus social security plus health care contributions to run you $2k per month. State taxes will swallow another $900 and as I'm probably missing something, somewhere, let's call it an even $3,000 or 30%, even before the optional stuff is factored in. Further subtract from that housing costs of, say, $4,000 a month (see post #3) and you are down to keeping only 30 cents on every dollar earned just to starve to death because no one has bought any food yet or got transport to get to the supermarket.

Can you live here on $120k per annum? Sure you can, but the only point I'm making is that you won't be living life in the large.

As a final comment, though, let me say this. Silicon Valley is a great place to live. Indeed, if you are in high-tech or software, there's nowhere better. Add to that the northern California location, and frankly it all becomes a bit of a no-brainer. However, it's not for everyone, especially when families or significant others get to have their say. The educational system can be challenging for kids and the sacrifices you have to make to live in a premium school district may ultimately cause you to head home, or at the very least somewhere else in the USA.

Come here with your eyes open to the possibilities and view this as a unique opportunity to take advantage of all the Valley and California has to offer and you'll have no regrets, no matter how short your stay ultimately is. I've been here ten years and still have no desire to leave, despite all that the UK has to offer and indeed has afforded me in the past. And trust me, that's saying a lot!


I said...

I guess there is not alot in it between the UK and US really.

The tax people are going to get you either way whereever you live!

Salaries look the same (ish)
Cost of housing might be a wee bit more expensive in USA. Property tax is defo!

Income tax runs at 40% when in UK, by the time you add the USA looks similar.

Cars are cheaper, though you might get away with public transport + 1 car in the uk if your lucky.

I think it starts to come down to some of the "softer things" in life:

- if your in hi-tech CA is a great place to network
- UK is more risk averse when it comes to investing/trying things out!
- weather is much nicer in CA!

J said...

Absolutely, I'd say that from an income standpoint then total taxes here are about the same as they were in the UK.

It's the number and diversity of start-ups that's the most striking difference between Europe and SV. Across the board, there's more risk taking practised here and almost no stigma attached to failing, it's all just learning for the next one.

Oh and yes, the weather *is* much better! 3rd March today and highs will be in the low 70s ....