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Thread: Golden handcuffs and taking a salary cut

  1. #11
    Now we know... Asteroids Champion ACow's Avatar
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    Quote Originally Posted by DaDaMan View Post
    So I now find myself in a situation where the company I currently work for has me in golden handcuffs (paying me more than the market would to keep me), but the situation has changed and I have reached a point where I want to leave but find that while other employers are interested in me, they find my salary to be a bit of a barrier. I am considering taking a salary cut (about 20% less) to make a move possible. I also feel as though I am probably earning more than I am worth at the moment. Is it advisable?
    First of all, in monetary terms you're worth whatever someone will pay you. I only bring that up because going out looking proclaiming oneself overpaid is a bad psychological position to start bargaining from.

    Second of all, there's more to life than money, but it depends.

    What do you want out of life and why do you go to work? I took a small 'pay cut' to leave the bank, primarily because I knew i'd never achieve anything of any worth there and never keep growing my skills, even though the pay opportunities could be greater if you want to play the game and do nothing but politics/stepping on others. But i got a fifth week of leave in that move, work closer to home, get a bit more money put away for retirement, work with nicer people, have flexibility, and so far I'm actually respected and people are using my stuff. Last year or two hasn't even been comparable, but then we've always saved money so we've got the option of passing in bad situations...

    Honestly, i would of taken a pay cut to move away from canberra...

  2. #12
    Now we know... Asteroids Champion ACow's Avatar
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    Quote Originally Posted by starla View Post
    That actually depends. All the analysis I did back when rhinosaur and I were trying to figure out wtf to do with our lives indicated that in the long run, you get the best financial outcome if you take the highest pay you can get regardless of cost of living, assuming you could afford to buy a house on your salary in that area. The second biggest lever for long term financial outcome is local taxes. I think COL tends to wash out of the equation because theoretically (or at least in my assumptions) real estate values climb with inflation over the long run, and most of the difference in COL tends to be in housing cost, which you will in theory get back if you are planning to sell and move when you retire. Sure there are other factors at play in real estate, but they can't really be predicted, so I leave them out. In the meantime, you are earning more money, building more equity, putting more into a 401k, getting more matching, and building up for a larger social security payment when you retire. If you get equal offers in two places and can afford to buy a house in either, go to whichever has the lower local tax rates because that is money that you will throw away and never see again. You can invest whatever money you would have been plowing into a jumbo mortgage and get the same outcome.

    Of course if you have six kids and a stay at home parent, COL will be a really big factor in where you can afford to buy an adequate house. It's completely different if you're a couple of STEM majors with no kids, since you can adjust your lifestyle in response to COL much more easily.

    And if you have strong opinions about where real estate is heading in particular parts of the country, feel free to include them in your analysis. It would probably change the outcome.
    On the average, there's good economic first-order theory behind the idea, as you've said, that COL should come out in the wash. Demand is most typically tied, at a best first approximation for most markets, from local wages. A greater market generally offers more opportunities for substitutions to save more money if you're disciplined enough to save and not spend your entire paycheck. As long as transaction barriers are low, moving to a high income area, saving using those efficiencies, then gradually transferring out to a lower COL place at some future point is a pretty strong strategy. Even just staying in the high wage area is going to get you more wealth than sticking to a lower wage place, ceteris paribus.

    Of course, in the real world, there's more complications: there's psychological and real costs in a lot of high income places and benefits in certain areas for which there can be no substitutes or competition. If you have to consume now or can't partake in those benefits of substitution and savings. And in the real world, there are certain micro-economies where that first order approximation doesn't hold: traditionally areas with a high connections to holidays, retirees, and investment flows.

    As the exceptions which prove the rule, I couldn't/can't see any rational reason for an educated person to choose to live in Sydney vs Melbourne. The COL differences just aren't supported by the wage/infrastructure differences, and while the downside risks to owning property exist in both, they're magnified in Sydney if investment/leverage flows pull back. Indeed that's one of the reasons we chose to look at Melbourne/Brisbane in preference to Sydney again. Of course, these would both be considered high wage/high cost cities by any first world expectation. We don't have the low wages + labor/conditions + illegal labor + limited welfare of the US to really drive huge COL differences.

    I don't know what the situation in San Fran is at the moment, and i've only got limited understanding of the US: i'd say its the closest analogy to Sydney, but at least local wages support their outrageous valuations of the town itself: but if i had to live in the US i'd still probably would have tried to earn a wage in the east/west coast/research triangle as an educated dink couple That being said, I haven't looked at where the US internal market/politics is heading for some years now... so alas, no predictions :P

  3. #13
    Meae Musae Servus Hephaestus's Avatar
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    Quote Originally Posted by starla View Post
    That actually depends. All the analysis I did back when rhinosaur and I were trying to figure out wtf to do with our lives indicated that in the long run, you get the best financial outcome if you take the highest pay you can get regardless of cost of living, assuming you could afford to buy a house on your salary in that area. The second biggest lever for long term financial outcome is local taxes. I think COL tends to wash out of the equation because theoretically (or at least in my assumptions) real estate values climb with inflation over the long run, and most of the difference in COL tends to be in housing cost, which you will in theory get back if you are planning to sell and move when you retire. Sure there are other factors at play in real estate, but they can't really be predicted, so I leave them out. In the meantime, you are earning more money, building more equity, putting more into a 401k, getting more matching, and building up for a larger social security payment when you retire. If you get equal offers in two places and can afford to buy a house in either, go to whichever has the lower local tax rates because that is money that you will throw away and never see again. You can invest whatever money you would have been plowing into a jumbo mortgage and get the same outcome.

    Of course if you have six kids and a stay at home parent, COL will be a really big factor in where you can afford to buy an adequate house. It's completely different if you're a couple of STEM majors with no kids, since you can adjust your lifestyle in response to COL much more easily.

    And if you have strong opinions about where real estate is heading in particular parts of the country, feel free to include them in your analysis. It would probably change the outcome.
    That makes sense--assuming proportional discretionary purchasing power (which seems reasonable) the higher wages result in higher long term wealth, especially if your retirement plan involves leveraging disparity in purchasing power. I was thinking along the lines of moving to a high cost of living area like New York--I could see it being easy for someone to think they were getting a pay bump until they got there and discovered what they could afford.
    People think they understand their own mortality, even when that understanding has just changed.

    --Meditations on Uncertainty Vol ξ(x)

  4. #14
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    Quote Originally Posted by DaDaMan View Post
    So I now find myself in a situation where the company I currently work for has me in golden handcuffs (paying me more than the market would to keep me), but the situation has changed and I have reached a point where I want to leave but find that while other employers are interested in me, they find my salary to be a bit of a barrier. I am considering taking a salary cut (about 20% less) to make a move possible. I also feel as though I am probably earning more than I am worth at the moment. Is it advisable?
    It seems like you're uncomfortable with the situation. If I was in your shoes, I would assume that in the future, your salary could make you a target if you somehow "fail" to meet vague expectations. Also, jobs you may prefer are put off.

    I would feel like I was expected to earn the money in some ambiguous way.

    It would eat at me. Personally, I wouldn't want to spend too much time thinking about my job at home.


  5. #15
    singularity precursor Limes's Avatar
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    Depends on the economy of scale. If it's 20% of 50k, then leave, if it's 20% of > 100k then consider negotiating conditions, such as PTO, or half day Fridays, an executive bathroom...

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