What’s your living wage? You really need to know
Two important factors in making a career change are 1) how important is compensation to your decision and 2) how much income is really needed in your next chapter? Most people do not adequately factor in the income they minimally and ideally need when deciding on what kind of work to do, what location to live and work in, and what specific job to take. In fact, most people significantly underestimate the income they need, both to survive at minimal levels and to prosper at their ideal levels.
The Massachusetts Institute of Technology (MIT) has produced a Living Wage Calculator that enables individuals, and well as interested parties and organizations, to estimate what a typical living wage might be in every county and in many major cities in the United States. It’s a massive undertaking, but very helpful in building the understanding of how much the living wage varies across our land.
For example, the living wage in the San Francisco Bay area for a family of two adults (one working) and two children is $30.42 per hour (minimum wage in California is $9.00) while the living wage for the same family in Fargo, North Dakota is $21.91 per hour (minimum wage in ND is $7.25).
That’s a big difference driven, obviously, by major differences in the costs of living in those two locations ($63,273 in the Bay Area; $45,580 in Fargo). In other words, at those living wages for both locations, our family of four would have a comparable standard of living (though not necessarily the same quality of life).
A living wage for an individual or family not only varies by location, but also by personal circumstances. Someone with a chronic medical condition, a special needs child, college loans, or a myriad of other situations will have higher than average wage needs.
Furthermore, personal and family costs can be increased over the norms by discretionary but still important needs. For example, twice-weekly piano lessons for your budding Chopin wouldn’t be part of the typical living wage, but would definitely be part of YOUR living wage.
So, what’s the point? Simply that you need to do a good job of realistically assessing your income needs in thinking about a career shift. Can you really move from your job at a bank in San Francisco to that non-profit in Fargo you’re passionate about at 70% of your current income? Maybe yes, maybe no, but you need to figure it out.
We encourage you to start by using the MIT Living Wage Calculator to get a gauge for the cost of living in whatever community you are considering versus wherever you are now.
Then, we suggest that you adjust each specific expense line item for your specific circumstances. For example, in the table below, you might need to increase the annual medical expense line to reflect the on-going treatment of an on-going medical condition.
And lastly, don’t forget to add in special “discretionary” expenses, such as Junior’s piano lessons. Be realistic, not optimistic.
Oh, and one more thing. Don’t forget to add funding of a retirement plan to your budget if you don’t get one through work or if you need to provide supplemental funding. It’s highly likely that for most of us, Social Security will not provide enough in our golden years to maintain our standard of living. We work now, in part, to live well later.
Bill Pace is Managing Director of ClearlyNext, a guided online career program that helps people of all backgrounds and incomes figure out what to do next. Read more >