Author: Brad

Will the COVID-19 Pandemic Upend the Way We Do Business…Forever?

Brad

It’s 2:15pm, and you’ve just taken a quick break from work to check your phone. You open the social media folder in your iPhone, where you have applications like Twitter, FaceBook, LinkedIn, and Instagram. You open Twitter to check the feed for any important pieces of news you might have missed. The first tweet you see is something that someone you follow has retweeted, and instead of getting caught up on current events, you spend the next 30 minutes reading through the battleground taking place in the comments.

No, you’re wrong. I hate you.

That’s the takeaway you get from accidentally sinking so much time trying to figure out why unknown people from all over the country – even the world – are fighting to the virtual death over a fairly innocent tweet expressing a rather uncontroversial opinion or introducing a novel concept.

Now, imagine just two years into the future, and the overwhelming majority of corporate jobs are performed remotely. All communication takes place over company instant messaging platforms, meetings are performed over Zoom and the face-to-face interaction that has come to dominate the business world is effectively non-existent. What impact will that have on how we do business?

Social media, despite the demonstrable benefits that it brings, has also created quite the divide…will the same happen in the business world? What other surprising effects might there be?

Of course, no one knows what the future will look like in two years, but it certainly isn’t an out-of-this-world prediction that the move to online work will have a significant effect on how we interact. Humans are built to be communicative. We do that at our best when we are able to have conversations with one another, and really think about and digest what the other person is saying. The internet and social media have made communication easier, faster, and ubiquitous. There is no doubt…the effects have largely been borne out. The era of social media began more than a decade ago, and we now have years of history to examine some of the key effects. While some fields – most noticeably the technology industry – have had a remote-work capability for years, it was uncommon before COVID-19 for the broader economy.

Here are some of the key things to look for as we get deeper into this new decade, and business becomes less face-to-face.

Business from Afar

  • Employees often cite company culture as one of the biggest factors in determining where to work, and whether to stay. How will company culture – and by extension, employee satisfaction – be affected by little-to-no personal interaction? If employees become unsatisfied and turnover increases, what impact will that have on the viability of the company, and perhaps even entire industries?
  • Much has been said and written about when it comes to the rise of technology and its potential negative impact on future job creation. While a great number of jobs have been and will continue to be created as a result of technological advancement, the jury is out on whether there will be more or less overall jobs in the long-term. Will online work help us or hurt us?
  • If you can work anywhere in the world, why would you live where you live? I understand this question reads negatively, but really, do you need to or even want to be where you are if you are no longer required to be physically present somewhere? And if not, where would you move and how would you live? I’m sure this is a question that someone working in the real estate industry would love to have answered and is without a doubt a question they are already beginning to explore.

However, it isn’t just about real estate. Where people live is also where they spend money, and most importantly, where they live determines the way in which they spend money. For example, someone living in Florida spends money in service-oriented establishments (Disney, beach bars and restaurants etc.), whereas someone in Utah likely spends money on skiing and other forms of outdoor recreation.

In closing, the world will be different. That much we know. The rest is anyone’s guess, but it might just pay off to be thinking ahead.

The Coronavirus Experiment

Brad

Reflection is often thought of as a process that begins at the end of an event or series of events. It is, however, a useful mechanism to leverage during a moment of pause – whether that pause be naturally occurring or self-initiated. My reflection as of late, has been a mixture of both.

My new day consists of the following: I wake up, make some coffee, eat a little breakfast, and turn on my computer at the makeshift workspace I created in the living room – a space that prominently features an HP monitor that sits atop multiple textbooks to prevent my neck from craning all day. A half-full bottle of Purell is the primary fixture on my desk. For seating, I use a beach chair…the comfortable option in the house. Bloomberg is streaming on the TV, and it provides market information and background noise. At around 11 or 12, I take the bicycle for a 5-mile ride for exercise. The Coronavirus Task Force Briefing comes on around 5:30 or 6, which is followed up with a run and a workout later in the evening, and some reading interspersed throughout. That is about it. Nowhere I need to go…nowhere I need to be. My car sat so long that the tank hadn’t been filled in several weeks, and the engine barely started when it was my turn to drive for groceries.  

With limited mobility and a simplified lifestyle, my propensity to ponder and reflect has taken the driver seat. Here are some of the observations that surfaced:

Power of choice has increased – while not a profound discovery, it’s the abundantly obvious one. Routines are typically occupied by work or school – the obligations — with the remaining hours punctuated by the distraction du jour…watching TV, virtual argumentation (hello Twitter), or video games. In the coronavirus era, the places we always needed to be have been removed from the equation, leaving us with greater power of choice. For those performing work or school functions online, you must still perform, but there is new optionality as to when and how you will do so. This leads to my next observation, which is…

People are taking two routes with their time– one in which time is allocated in greater quantity to virtual distraction; and the more productive route, where high achievers focus their time efficiently, and are likely to accomplish personal and professional goals at a comparatively higher rate. Now, for those with children at home or who happen to be members of essential services performing their duty during this crisis (thank you), the circumstances are different; however, the general attitude and subsequent actions that they choose to take, will fall into one of the two buckets.

The coronavirus schools of thought – two opposing, vocal camps of people have emerged during the shutdown: one group that is inclined to feel we moved too quickly or too broadly to halt activity and economic production, thereby impacting the livelihoods of citizens in a significant, yet different way than the virus itself; and the other that believes the science community knows how we should respond during the crisis, and whose recommendations are delivered with a high degree of problem-mitigating accuracy.

Only in time will certain answers be revealed. Each camp is likely to discover that any response to the crisis would not be without costly trade-offs and missteps, and that there is not one right way of handling the situation.

Patriotism Remains – despite the differences, we have largely come together as a people. Politicians have thus far managed to move swiftly and definitively in the public’s interest with a high level of collective buy-in from the populace, and American industry has reengineered itself for the greater good, producing materials of need in hospitals and healthcare facilities.

The public health and economic experiment unfolding before us will be slow to yield final results. The impact to the economy, to livelihood, and to the health of many, has been and will continue to be substantial.

The Coronavirus Crisis…an Economic Education

Brad

When the new decade began just a couple of months ago, the S&P 500 was consistently creating highs, reaching a peak of 3386.15 on February 19th.

In the month since, the status of the market has been anything but rosy…

As a result of the rapid spread of COVID-19, nations across the globe are shutting borders, quarantines are going up left and right, and the market has shed about a third of its value.

One month. That’s all it took for an historic high to become a significant low.

I have been scouring news articles, tuning in to the daily Coronavirus Task Force briefings, and tracking developments across the globe. I have spent more time watching stock charts in the last few weeks than in all my previous days combined. And while few will feel that the crumbling of the markets is an exciting time, there is a silver lining.

In just a few weeks, I can’t help but feel like I have tapped into some rare wisdom…wisdom that would not have presented itself if not for the abrupt arrival of such a calamity.

I was in elementary school during 9/11, and a high schooler during the Great Recession…too young to fully grasp the reality of the first, and just old enough to appreciate the gravity of the second. Even the economic effects of the Great Recession weren’t entirely clear to me…the causes were even hazier.

Now older, wiser, and a half-decent self-study, I am acutely aware of where we find ourselves…smack dab in the middle of a once-in-a-lifetime education. After all, life’s great lessons don’t present themselves during times of comfort.

To quote Robert Kennedy, “All of us might wish at times that we lived in a more tranquil world, but we don’t. And if our times are difficult and perplexing, so are they challenging and filled with opportunity.”

Our time is certainly difficult and perplexing…but most importantly, it is one of great opportunity.

Observations

In documenting some of my observations, I have identified certain vulnerabilities being exposed through the unfolding of some fundamental cause-and-effect relationships.

Here is what I have so far.

Globalization: the rise in globalization has brought with it what many consider to be tremendous positives: ease of trade, travel, and cultural exchange. On the flip side, the ease of mobility around the globe, and our tremendous interconnectedness is beginning to rear its ugly head. While this will likely be a relatively short-term event, it will undoubtedly prompt some interesting governmental initiatives after everything is all said and done.

Supply Chains: not only are we highly connected as people, but corporations and their reliance upon effective supply chains – both inside and outside a border – are dependent upon ease of movement. While not a new or abstract concept, we had not previously seen such a disruption in the way that we are right now…and so quickly. If car parts or electronic components are built in China for their ultimate assembly in the United States, these items aren’t being produced and shipped during mass quarantine.

Business Debt: Total business debt in the U.S. recently surpassed total household debt for the first time since 1991. Why? Low interest rates. When interest rates are at or near zero it encourages companies to borrow heavily due to the low cost to service that debt. This leads to a highly leveraged corporate America. When companies carry too much debt, they are vulnerable during a downturn when demand has been reduced (or extinguished altogether, as we are seeing with governments forcing business closures). When they can’t service debt and pay operating expenses…they can’t keep employees on payroll.

Personal Finance

In addition to the broader economics of the situation, there are some key personal finance lessons being reinforced.

Lesson #1 happens to be the most important, and it cannot be overstated: always hold a healthy amount of cash. While others are worried about their cash flow if they lose their jobs (servicing debt and keeping up with expenses), a small number of people are comforted – if only marginally – by their healthy cushion of cash. An even smaller number not only have enough funds to get them by for a while but have excess capital that they can deploy – like purchasing stock at heavily discounted prices.

Additionally, for those who borrowed money to purchase securities (buying on margin), holding adequate cash prevents a forced sell-off of securities to cover the maintenance requirement when the value of the securities declines. These margin calls have exacerbated the slide in markets in the past few weeks, as many were forced to liquidate their securities – potentially at a loss. Be careful with your debt exposure.

Secondly, if you are buying stocks on the way down, set a price point you are comfortable with and walk away. Once you have completed your analysis of the company (determining intrinsic value, outlook etc.), it doesn’t do any good to watch the stock price continue to slide after you have made your purchase. Ideally, you bought a piece of the company as a long-term investor. Pivot to the next company if you still have more cash to work with.

Outstanding Questions

In closing, there is still a lot we don’t know. We would be wise to pay attention to see how some of these questions get answered. Here is what I want to know…

As a result of all this debt and these unique circumstances, who will get bailed out? We know that the likelihood of corporate bailouts is quite high (e.g. airline bailouts after 9/11; financial institutions and automakers during the Great Recession). Assuming they do get bailed out, what requirements will be implemented? Will airlines be prevented from spending money on stock repurchases, as so many are now calling for?

Additionally, as a part of any such spending package, will checks be sent to American families? It seems a foregone conclusion at this point, but how much will each person receive? How will they be made equitably?

Looking ahead, how will this impact our way of life after this crisis is behind us? This is an undeniably broad and difficult question to answer. Will governments spend more money and expend more energy preparing for the next global health emergency?

Only time will tell.

Coronavirus, markets, and the economy…

Brad

The global spread of the coronavirus has forced companies to halt business trips, crowded cruise ships to sit at port, and the Federal Reserve to issue an emergency cut to interest rates – the first since the 2008 financial crisis.

To end the month of February, the S&P 500 fell 10% in six trading days – the fastest move into correction territory in history.  In the first four days of trading in March, the Dow Jones Industrial Average whipsawed back-and-forth.

Note: percentages were rounded to the nearest tenth. Source: Wall Street Journal

Now, the pundits on TV and in newspapers are offering their predictions for where the market will go from here and whether we will sink into a recession. There are some, however, that have astutely acknowledged a simple truth…

We can be certain of only one thing, and that is that we cannot be certain of anything.

If that statement seems like a contradiction, it’s because it is.  Nobody knows what will happen to the market or to the economy for that matter.

Instead of allowing this idea to sow panic, it should serve as a source of clarity…potentially even comfort. That’s because amidst the chaos of irrationality, you gain solace in remembering your long-term plan. The investing strategy that you developed – the one that has worked for you for months or even years – will continue to do so. But it will only continue to work for you if you follow it. Here are a few reminders:

  • Unrealized Losses – you have not lost any money until you sell a security…so don’t sell anything unless it is already part of your investment plan (unlikely for most).
  • The stock market will rise – the market goes up and down, but over the course of years/decades, it will go up. Steep drops will happen along the way. Speaking of the market…
  • You cannot time the market – few people on earth can effectively time the market consistently over any considerable period of time. When will it reach the bottom? No one knows. So be careful when waiting for that “perfect” buying opportunity.

As for the virus itself, the world will recover, we just don’t know how long it will actually take and what the human and economic toll will be.

Things to Know for Tax Season

Brad

The best season of the year is here! The one we have all been waiting for with eager anticipation and excitement….

Tax Season!!

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Okay, so that’s not true. It’s not fun. But it is here. And it’s time to find out how much money you lent the U.S. government at 0% interest (your refund), or how much you owe them (oops).  

Taxes are complicated business. If you have ever (or perhaps still do) filled out the paper version of Form 1040, you’ll know, it’s a puzzle… a web of additional forms, schedules and enough bewildering questions to make you feel like you’re back in your high school algebra class.

Thankfully, online software has greatly simplified this process, and at little or no cost to you.

If it’s your first time filing taxes or you are simply trying to keep up with the latest “need-to-knows” for tax season, the below is a quick guide to help you out.

Tax Guide

Common Forms

W-2 – reports the wages you earned from your employer, and the taxes they withheld for the year.

1099-DIV – used to report distributions that an investor received (dividends or capital gains).

Example: Stock or bond dividends in taxable accounts (note that this does not apply to tax-sheltered accounts like a 401k, Individual Retirement Account (IRA) or Health Savings Account (HSA)).

1099-INT – a form used to report interest income (e.g. Bank account).

Note: if you did not receive more than $10 in income interest from the account for the year, your bank would not be required to provide you with a 1099-INT. You would, however, still be required to report the interest when filing your taxes.

Schedule 1 – used to report any additional income you generated, such as from a business or through real estate rentals, and to claim adjustments to income through deductions for educator expenses and student loan interest payments (see below).  

8889 – if you have a high deductible health plan, and are eligible for an HSA, you would use Form 8889 to report HSA contributions made during the year, as well as any distributions you received from your account.

Form 1098-E – this is your Student Loan Interest Statement, indicating how much student loan interest you paid during the tax year.

Deductions

The 2017 Tax Cuts and Jobs Act doubled the standard deduction (beginning in the 2018 tax year), reducing the likelihood that you will need (or choose) to itemize your various deductions. However, there are still a number of “above-the-line” deductions that you are able to take, regardless of whether you take the standard deduction or not.

Student Loan Interest – millions of Americans are paying down their student loans. If you count yourself among them, you can deduct up to $2,500 in interest per year, per tax return (a married couple would only be able to deduct $2,500 in total). Be aware that this deduction does phase out above certain income thresholds.

Educator Expense – provides for “eligible educators” to deduct up to $250 worth of qualified expenses (items such as books, classroom supplies and computers).

Saver’s Credit – if you saved money in a retirement account (401k, Individual Retirement Account (IRA) or other credit-qualifying account), and your income for the year was within certain thresholds, you could qualify. Individuals would need to have saved $2,000; couples would need to have contributed $4,000.

2020 Preview: Your Finances

Brad

How did you do in 2019? Did you achieve any or all of your goals?

December is a great time to evaluate accomplishments and shortcomings for the year, as well as any general progress you may have made pursuing something worthwhile. It is a time of reflection for all that you experienced, and to plan ahead for what’s to come. If you don’t keep a journal to track your progress, now’s the time to start!

When looking ahead to the next year, it’s easy to get wrapped up in the chatter surrounding a possible recession. Will there be one? And if so, how big will it be? How do I develop achievable goals with so much uncertainty?

It’s simple. Focus on what you can control.

I recommend one overarching goal that allows you to develop a few, smaller goals.

Primary Goal

When you set a certain net worth that you want to achieve for the year (or perhaps over the next 3-5 years), you are effectively creating sub-goals at the same time. If you are having trouble coming up with a primary goal, this is a great one to establish. It will likely look a little something like this…

Primary Goal: Reach a six-figure net worth

Which means you will need to…

Reduce Debt – If you carry any debt (credit cards, student loans etc.), you will want to reduce it.

Increase Income – While saving and investing is critical to increasing your net worth, you can only reduce spending by so much. Increasing your income will allow you to stash a lot more cash. Perhaps to help you acquire a higher income, you need to either change jobs or pick up a side hustle.

Find a Mentor – Having a mentor who has achieved what you seek to achieve can be an invaluable addition to your plan of action. A mentor may be able to show you new ways to increase income, reduce debt, or simply raise your personal and professional profile.

Invest in Yourself – In addition to finding a mentor, make sure you are reading the right books, attending the applicable seminars, and taking courses.

Once you’ve established your primary goal and sub-goals, you’ll want to create a system for tracking progress along the way. Keep tabs on all of your assets and liabilities on a monthly or quarterly basis, as well as a method for holding yourself accountable to certain milestones…and you are on your way!

Housing: Should you Rent or Buy?

Brad

When evaluating whether to buy or rent your own place, it appears as if the decision were quite simple.

If you can cobble together enough cash for a down payment, comfortably afford the mortgage payment, and don’t carry excessive debt, then no problem, right? After all, when you rent you are simply ‘throwing money away’. This must be a no-brainer…

Perhaps, but let’s consider a few things.

Buying

Buying can be an extremely rewarding endeavor. You have the opportunity to take advantage of appreciating property value and will build equity over time.

Before making the leap, there are a few more components to consider.

Property Tax — It is common for first-time buyers to overlook the other costs associated with ownership. Aside from acquiring a sufficient down payment and planning for the monthly mortgage payment, consider what it will cost you in property tax to own the property.

Maintenance — While renting, you were not responsible for replacing a broken dishwasher, refrigerator, or water heater. As the owner of the property, that cost is now yours! Set aside savings that are dedicated to any future repairs for aging equipment.  Also, ensure that you aren’t using up your entire savings just to make the down payment. You could find yourself in a bind if something went wrong.

Insurance – As with your car or your health, it costs money to insure your home. Be sure to research insurance rates for your local area.

It is also a rule of thumb that you should consider buying only if you intend to stay in the same place for five or more years. Why that long? Well, it costs money to buy and sell a home.

Closing Costs — It will cost thousands in closing costs just to purchase the place, and then again to sell.

Commissions — If you use a real estate agent to prepare and facilitate a sale, there will be a commission paid to the agent once a buyer is identified.

It will also cost time, energy, and resources to get a house prepared to sell (don’t forget those blemishes you have been neglecting). The process of finding a buyer and then closing the deal will take additional time.

Renting

While it is true that you will not build equity in a property by paying someone else for the right to occupy their residence, there are a couple of good reasons for deciding to rent despite being equipped financially to purchase.

Cash flow – In many locations, the monthly payments for rent are less than what you would pay on a mortgage (sometimes greatly so). With lower monthly payments, you could be pocketing the difference as savings. If the gap between the two is significant, you could be saving hundreds per month.

Mobility – If you are unsure whether you will be staying in an area for the immediate future, renting affords you the ability to pick up and go, should you need or want to be someplace else.  Working on a contracted assignment? Young professional eager to try somewhere new? Consider renting.

The Decision

Consider your personal situation, calculate the true costs of ownership, then come to a decision. You will know what is right for you.

The Cost of College

Brad

“You’re going to college”. These are the words that many young people have drilled into their heads by their parents at an early age.

It’s an admirable goal. The attainment of a degree has historically opened up opportunities for millions that would have otherwise been out of reach. However, the story has become more complicated in recent years. With mounting debt, the financial burden is growing.

Breaking Down the Numbers

According to Forbes, there are 45 million borrowers who owe a combined total of 1.5 trillion dollars in student loan debt. That total exceeds all other debt categories except mortgages. The cost of attendance at in-state public institutions has increased at a rate of 221% over the last 20 years, outpacing both inflation and wage growth. The average borrower for a 4-year program from the Class of 2018 left school with $29,800 in debt. For those choosing a professional degree in a field like law or medicine to supplement their bachelors, they are likely to incur total balances in the six figures.

Now, when you are a 17- or 18-year old kid, you don’t yet possess a firm comprehension of what it means to borrow a large sum of money. Sure, you may understand that it is generally bad to borrow excessively and that it should be done for select purposes, but that is the extent of it.

Let’s break down an example to offer context.

Sharon’s Student Loans

Sharon is a recent graduate who owes the $29,800 that a typical undergraduate borrower owes, with a fixed interest rate of 4.53% (federal subsidized loan).

On a 10-year repayment schedule, Sharon will be paying $309.27 per month, assuming she does not make any additional payments.

With the monthly payment now calculated, Sharon has a number she can use. She can now compare how much it will cost to service her student loan per month, relative to how much money she will be making.

Now, hold on…Sharon has decided to attend law school.

For 3 years of law school at the best public school in her state, her total out-of-pocket expense will surpass $100,000. To simplify the math, we will use $110,000 as her total loan balance including principal and capitalized interest (graduate loans are unsubsidized, and you owe the interest for the entire time that you are still in school). Her interest rate is 6.08%.

On a 10-year repayment schedule, Sharon will be paying $1,225.65 per month, assuming again that she makes no additional payments.

Now, don’t forget, she still needs to pay off the balance she borrowed for her bachelor’s degree.

Total Monthly Payment

$309.27 (bachelor’s) + $1,225.65 (law degree) = $1,534.92/month

Ideally, Sharon landed a well-paying legal job in a major city where a $1,535 payment is no problem. Or, perhaps she didn’t.

Sharon could certainly consolidate her loans and refinance them at a better rate and repayment term, but she will pay more in interest over the life of the loan.

The message here is that the cost of borrowing money for an education is entirely notional until you break down the numbers.

Factors to Consider

When deciding on whether to attend college, where you will attend, or what you will study, there are many factors to consider. Here are six.

  • Private or Public? Many private schools charge a much higher rate of tuition than their public counterparts, especially if a student is staying in their home state. The top schools in the United States are private (think Ivy League), however, there are many phenomenal state schools…which will likely leave you with a far smaller financial burden.
  • Scholarship/Need-Based Aid Availability? Are there programs in your home-state that reward you for reaching certain benchmarks on standardized tests and/or achieving a certain Grade Point Average (‘GPA’)? Did one school offer you money to attend, while another did not? Do you qualify for need-based aid, like Pell Grants?
  • Major of Study? Evaluate your skills, strengths and interests to help decide what your ‘Major’ or focus of study will be. In so doing, pay attention to likely career outcomes to know what the starting and mid-career earnings are for that Major.
  • Graduate School? Will graduate school allow you to earn additional income over the course of your lifetime in your respective field? Is the degree required for your desired profession? Is it simply a non-financial personal goal of yours? How much will it cost to attend, and how long will it take you to pay it off?
  • Alternative Career/Job Options? If you decide not to attend college, do you have viable alternatives for work? What do they pay, and what is the long-term viability of each of those options for you?
  • How will you pay for School? What are your options for paying for tuition, books, fees, housing, food etc.? If you are not receiving assistance from family, or the assistance does not cover the entire cost, will you be able to work to cover the remaining costs? How much debt will you leave school with and what will the monthly payments be?

It is often pointed out that college or graduate school will be an investment in yourself, and that it is therefore worth the cost. Yes, education is an investment in yourself and in the vast majority of cases it will be worth the cost. Evaluate your choices and options based on key factors like your career aspirations and personal goals.

Above all else, know the numbers.

Freedom of Time

Brad

The acquisition of money is universally important. From the necessities of food, clothing and shelter, to the luxuries of exotic vacations and nice cars, money is always required.

Some people are content with the basics, while others seek the lifestyles of the rich and famous.

What’s less talked about is one of the greatest benefits that money can offer…the gift of time.

Time is an ever-diminishing asset. It’s incredibly valuable, yet, you can’t increase its quantity.

Or can you?

No, I don’t mean immortality. I’m talking about owning more of your 24 hours.

You see, while money can be exchanged for a great number of things, it offers its largest returns in the form of time.

Have you ever wished you didn’t need to spend those extra weekends working, so that you could spend time camping with your kids? Maybe you want to travel the globe, invest more time in your volunteerism, or simply transition to work that you find more meaningful…to follow your passion.

Traditional Retirement

Most are familiar with this concept, but the message isn’t typically offered in the same context. “Retirement” is the standard pitch, and it is a noble one. Save and invest through 401(k)s and IRAs, use Social Security and Medicare to defray costs, and in your 60’s, you will (hopefully) begin to live off what you have accumulated.

This is a tried and true approach that has provided millions with comfort throughout their golden years.

However, there is another way.

Financial Independence, Retire Early (F.I.R.E.)

There is a growing movement known as FIRE, in which people save a considerable percentage (often well above 50%) of their income and invest their way to financial freedom. Once their portfolio of assets (oftentimes 30 times their yearly expenses, although it will vary person to person) reaches a certain figure, they consider themselves to be financially independent, and can retire from their day job.

They withdraw funds from savings at 3% or 4% each year, ideally living off interest and leaving the principal intact.

Some will retire and never work again, choosing to spend time pursuing hobbies. Others will find more meaningful work, start a non-profit, or open a new business.

Whether you seek to retire early or not is up to you.

Financial independence translates simply to freedom of choice. Deciding how to spend your time is wealth’s true reward.

Moving to a New City…How Much is it Going to Cost?

Brad

Your phone rings with an unknown number and a 202 area code, and you quickly think to yourself…do I know anyone in Washington, D.C.?

After a few minutes indulging the stranger on the other end of the line, the phone call concludes, and you turn to your partner and say: I just got offered a job in Washington!

The manager of a new department at a reputable firm in the city was impressed with your skill-set and experience (LinkedIn is a crazy thing!), and felt you would be the perfect fit to join the team. Your initial thoughts are that the role seems like a tremendous opportunity and that it is right in your wheelhouse. A great offer monetarily, and plenty of room for upward mobility! Tremendous!

Before you call up your girlfriends to tell them the exciting news, you pause and think. Isn’t D.C. expensive?

Hmmmm.

Cost of Living

The cost of living in your given area (housing, food, taxes, healthcare) will determine how much of the pie you get to keep. Yes, you always pay yourself first, and sound financial decision making plays a critical role in wealth accumulation, but if basic necessities come at a premium in your town and your income isn’t high comparatively, it will prevent your balance sheet from growing.

Tampa to D.C

You currently live in Tampa, Florida, and, while not the cheapest place to rent or buy a house, there is no state income tax, and the cost of goods and services is pretty low.

Now, let’s say you currently have a pre-tax income of $50,000. The D.C. job offer includes a salary of $75,000 and, right off the bat, a $25,000 bump surely seems like an upgrade!

Well, according to the BestPlaces cost of living calculator, a $50,000 salary in Tampa would need to become $79,991 to maintain the same standard of living. On the NerdWallet calculator, they put that number at $89,879! Crazy, right?

Each calculator factors in health care, median rent/housing, food and transportation, with housing being, by far, the largest reason for the cost increase of moving from Tampa to Washington, D.C.

There are of course many factors when conducting such a comparison and every situation will be unique in its own way, but a fundamental understanding of the relative value of a dollar in a given location will be your greatest asset as you go to evaluate the financial implications of a decision to move.

Perhaps this is your dream job. Maybe your partner has family near the city, and you have always talked about moving closer to them. Whatever the case may be, study the cost of living so that you understand the financials of the decision when the time comes.