Economy & Jobs

Living Wage Research May Prevent You From Treading Water Financially

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Let’s say you’ve been given an opportunity to take a job in another state. The pay seems reasonable, even though it’s $5,000 less than what you’re making right now, but there is also no state income tax where you’ll be moving to. From a financial perspective, should you make the move?

Before packing up your life, assess whether a job move would make sense by comparing the living wage of your new location with your salary or wage offer. This is a great practice when making big decisions about where to work and live so that you don’t end up treading water financially.

Calculating the Living Wage

The minimum wage doesn’t quite give an accurate picture for whether or not a family of four (the common family unit used in calculations) can live comfortably in a given area of the country. Economists and policymakers came up with the living wage to create a better picture, which looks at what a set of basic necessities in a specific area would cost to determine what an adequate hourly wage would be to cover those expenses. (Hint: Keeping your income above this amount means you shouldn’t need government assistance to survive.)

The categories most often used to calculate this wage are:

  • Food
  • Child care
  • Health care
  • Housing
  • Transportation
  • Other basic necessities

State and Local Differences

Costs of living and living wages vary from location to location, whether that is in-state or across the country. After all, it’s monumentally more expensive to survive in New York City than it would be to live two hours upstate.

While there is no federal living wage law, more than 120 cities across the U.S. have these laws for certain workers. Typically, however, only employers that receive state assistance or have contracts with the government must comply.

How do you find out what you need to make to cover the costs of living in a certain area? A popular way to estimate this is through the MIT Living Wage Calculator, which breaks wages down first by state, then by county, and then by individual cities and towns. It also show you typical expenses for a single adult, single adult with children, and a couple with up to three children, along with the corresponding wages.

The Living Wage in States With No Income Tax

It is possible to live in a no-income tax state and struggle on the same salary that could put you in a comfortable middle-class position in a state with income tax. However, when state income taxes are not automatically withdrawn from your paychecks, this increases your cash flow, putting extra money in your control. You could simply choose to consume less so that you pay fewer taxes overall (both consumption and income) than if you were living in a state with income taxes. Or you might consider moving to a different town in the state with a lower cost of living.

With this information in hand, choose wisely when figuring out where to work and live. Remember to research the living wage right before the negotiation phase of your next job offer. This will arm you with the information needed to negotiate a salary that allows you to live comfortably, no matter where you move.

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Amanda L. Grossman is the creator and owner of FrugalConfessions.com -- live a VIP life on an average paycheck -- where she shows hard-working people how to end anemic savings account syndrome and pay off debt years earlier than your creditors want you to without getting a second job or eating ramen noodle dinners. Amanda's area of expertise is in personal finance, and she has authored several personal finance articles for the Houston Chronicle, is a featured blogger at the Houston Chronicle, and has staff written for ReadyforZero.com Blog and RelayRides.com Blog (several of which have been syndicated to LifeHacker, Business Insider, and Yahoo Finance). She has a knack for taking seemingly complex, and irrelevant financial topics and making them accessible and meaningful to the average person. She, her husband, and their two cats (Lyla Bear and Danny Boy) live in a fixer-upper in Houston TX.