Trying to move but weighing a potential pay cut? It still might be worth it.
The coronavirus pandemic has spurred many people to reconsider their living situations and trade big cities for the suburbs as companies say employees can work remotely on a permanent basis.
In some cases, those moves come with a catch. Companies such as Facebook, Microsoft and Stripe have said they may lower the salaries of employees who move to cities with lower costs of living. At some firms, pay could be cut 15% or more depending on relocation, The Wall Street Journal reported.
Still, such a move may be worth it, if other expenses will fall more than your reduced pay or it will significantly improve your quality of life, according to financial experts.
"You can't always let cost drive your decision making," said Judson Meinhart, manager of financial planning at Parsec Financial in Winston-Salem, North Carolina. "Make sure you're going to be happy."
Calculate the cost
If you're considering a relocation that may come with lower pay, the first thing to do is find out exactly how much your salary will be reduced and when the change will take place. For example, Facebook employees have until Jan. 1 2021 to notify the company they've moved before compensation is adjusted.
Once you know this information, you should sit down and outline your current monthly budget, then compare how costs might change in another location.
Start with the biggest-ticket items first, said Meinhart, a certified financial planner. "For most people, this is housing, vehicles and taxes," he said.
You can save considerably on rent, mortgage or even property taxes if you're moving from cities such as San Francisco or New York to a suburban area according to Meinhart. Cost of living calculators such as NerdWallet's can help break down some of your potential savings.
Moving from a high-tax state to a low-tax one could also be a big benefit, Meinhart said. If you have lower pay, you may be in a lower marginal tax bracket. And, states including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no income taxes.
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"If you're earning over $150,000, moving from a high-tax state like New York, New Jersey or California to one of these tax havens could result in a savings of more than $10,000 per year," said Meinhart. One caveat: if the company you're working for is based in a high-tax state, you may still be dinged for taxes there.
In addition to savings, you should consider the costs of moving, unless your company is offering a relocation bonus such as Stripe. You may need to hire movers, purchase new furniture and other essentials or pay to break your lease, said Roger Ma, a CFP and founder of New York City-based financial planning firm lifelaidout.
Include those costs in your calculation of expenses in the first year post-move, Ma said. Then, compare that to what the second year and beyond will look like as well.
Even if you spend more than you thought you would on moving this year, living in a new location might save you a lot of money down the road, he said.
Weigh a lifestyle change
Outside of financials, it's important to consider the lifestyle factor of moving, said Ma. If you're going to have a significantly improved quality of life, it may be worth it to relocate even if you aren't necessarily saving a ton of money in your new home, he said.
Amid the pandemic, you may find that being closer to family, having more space inside and outside and having an overall slower pace of life may make it worth moving, said Ma.
"Really it's ultimately about making yourself happy and putting yourself in the best situation," said Meinhart from Parsec Financial. "Sometimes you do have to take a short-term hit financially."
Reasons not to move
To be sure, there are also some situations where it may not make sense to move now. One thing people should keep in mind is their long-term plans – if they may want to come back to their original city later, it may be harder to do that if they've taken a pay cut, said Laurie Allen, a CFP and founder of LA Wealth Management, a financial planning firm in Long Beach, California.
"The longer that you stay away, the harder it is to come back to an expensive area or a city center," she said.
She also noted that not everything is necessarily cheaper outside of a big city – depending on where you want to move, childcare and food could be just as costly, she said.
"You're going to have to do a little bit of research about the cost of living and what things are more expensive," said Allen. Miscalculating could put you behind on other financial goals, such as saving for retirement, she said.
If you're weighing a move but aren't sure it makes fiscal sense, Allen suggests sitting down with a trusted person such as a financial planner that can act as another set of eyes.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.