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A Tale of Two Cities

Well, I survived the annual screwing by Uncle Sam. Bye bye money that could have bought a lot of Lilly. I'm ticked off this year because some of my deductible expenses exceeded the allowable deductible cap so I had more income taxed than I should have if the system was fair, boo! But anyways, my sorority sister SM made a comment on my FB post on also getting screwed on her state income tax. God Bless the great state of TN for our conservative legislature and no income tax. But it got me to thinking, even though I do pay less taxes I also make less than my yankee friends, am I really winning here in the south? Any y'all know how I answered that question, I graphed it. :)
 
Ok, so we have two sweet, nice looking girls in the same sorority and upon graduation they tearfully hug goodbye and go their separate ways. One moved up to NYC and the other back to her hometown of Memphis. By age 30 NYC girl is making $100,000 and Memphis girl is making $55,000 (I just picked 100,000 as the NYC salary to keep it even then looked up the type of job that would pay that and found the Memphis salary). Both are on the company insurance plan and pay the flat single person contribution costs. Both girls are smart and take advantage of their 401K and set aside 6% of their income. Now NYC girl winds up paying 25% of her income in state and federal taxes while Memphis girl is paying 15%. Side note, why is NYC so full of democrats given this horrible tax rate?
 
With their take home pay both girls also set aside 10% in personal savings. Memphis girl is able to keep her total housing costs at 35% of her income while NYC girl needs to go to 40% to live in a safe neighborhood and have more than a closet. NYC girl spends an average of $20 a day on cabs while Memphis girl has a car and buys gas. Both girls buy groceries and have a nice dinner and drinks with friends once a week. Both girls have the same student loan expense and both girls set aside the same portion of their income for fun stuff, i.e. entertainment and looking nice.
 
Now Memphis girl has used up all of her income while NYC girl still has a little left, so she puts that into savings as well. Both girls are living very similar lives, NYC girl gets to dress fancier but we'll get to that in a minute. The real difference isn't affecting these girls today, it's when they go to retire, NYC girl will have twice the retirement account as Memphis girl so if they both go down to Florida to retire they are going to have very different retirement accommodations. The only way Memphis girl can ever hope to match this is if she buys her home while NYC girl rents, then she will have 5 years or no mortgage payment to divert to savings and be able to sell her home for cash. Now one or both of these girls might get married and have kids which would drastically change this model, but the point was to show the long term effects of the income  / tax/ cost of living gap.
 
On a personal level, this really put my love for designer clothes and accessories into perspective. I'm wanting a NYC wardrobe (ok, really a Palm Beach wardrobe) on a Memphis budget. Memphis is not perhaps less fashion sophisticated than bigger cities, it's just that a $300 purse is a bigger purchase here than it is elsewhere. Don't get me wrong, I still love my living situation in Memphis but I'm realizing it might not be the worst thing ever to consider moving one day.
 
Here's the actual numbers for my fellow math nerds if a visual helps.
 
    NYC Memphis
Income   100,000.00 55,000.00
       
Insurance   2,400.00 2,400.00
401K   6,000.00 3,300.00
Taxable   91,600.00 49,300.00
Taxes   24,598.60 8,254.00
NET   67,001.40 41,046.00
Expenses:       
Savings 10% 6,700.14 4,104.60
Housing   26,800.56 14,366.10
Transportation   7,300.00 6,980.00
Food   10,400.00 6,500.00
Student Loan   3,000.00 3,000.00
Entertainment 5% 3,350.07 2,052.30
Clothing and Beauty 10% 6,700.14 4,104.60
       
Additional Disposable   2,750.49 -61.60
       
       
Annual Savings   19,450.63 9,666.20
       
35 year    1,440,000.00 742,220.00
Inflation Adjustment   496,457.00 255,589.00

Comments

  1. Hm. This is an interesting comparison. Even CT to Memphis is an interesting comparison. It's cheaper to live in the South in general, but at the same time, the wages are lower. So it does somewhat even out at that level. Very interesting.

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