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On paper, engineers are paid so much more in Silicon Valley than in the rest of the world. But would you be better off working in a place with a normal cost of living instead (see online discussions here or here)? Let’s find out.

New Grad

Congratulations. You just graduated from college and you passed Facebook/Google’s grueling interview process. Their job offer feels really high — you can’t believe anyone is willing to give you more than $100K/year after all these years eating ramen and cheap pizza in college. Of course you should take it. Or should you?

According to our Silicon Valley salary guide, your compensation would look like this. Your starting salary is an amazing $120K, plus a sign-on bonus of $20K, and RSUs, vesting over 4 years, valued at $150K.

But with federal and California taxes, your net compensation the first year would be $132K (and $140K the second year).

To save some money, you decide to rent a room and move in with some friends (it still costs you $1,500/month). It feels like an extension of college, it’s great. Net savings: $100K/year. You can start paying your student loans a bit, send money back home, and go out. Life is good.

Income Taxes Salary $120,000 Federal Taxes $34,650 Sign-on Bonus $20,000 State Taxes $13,488 RSU Grant (4 years vesting) $150,000 FICA $10,535 Total $177,500 $58,673 Net Compensation $118,827 Housing Costs $18,000

Senior Engineer

Your girlfriend is tired of seeing your roomates every day (by the way, congrats on getting a girlfriend). It’s time to find a place of your own. Luckily, you are now more senior at work and your RSUs are starting to add up.

After 5 years, with regular raises, your salary is now $145K. You got about $60K of RSU refreshers every year. So your overall compensation is now a mind boggling $245K. Are you feeling rich yet?

Not so fast. Federal and California taxes still take their share, so your net compensation is $148K. And you are now renting a 2-bedroom apartment ($3,000 a month is not cheap but you and your girlfriend can finally enjoy some quality time). Yearly savings: $112K. Same as when you started. But your life situation is a lot more stable now though. Feeling great.

Income Taxes Salary $143,096 Federal Taxes $54,041 Bonus $30,000 State Taxes $18,915 RSU Grant (4 years vesting) $70,000 FICA $11,704 Total $233,096 $84,660 Net Compensation $148,436 Housing Costs $36,000

Start a Family

It’s been 10 years at your job, you are now quite senior. Oh, and your girlfriend is now your wife. It’s tempting to move out of Silicon Valley because buying a house is just so insane. Moving somewhere else where real estate is more affordable makes sense. But you’d be leaving behind the high-paying job and the safety net of easily finding a new gig whenever you get bored.

Instead, you buy a fixer-upper for $1.2M — in Silicon Valley, that’s the cheapest you can find. You put down a 20% downpayment, but since you saved more than $500K so far, it’s not a problem. Your montly mortgage is $4,000/month, but you’re doing fine. You are now saving $150K/year. Now you feel you can settle down.

Income Taxes Salary $174,098 Federal Taxes $89,299 Bonus $50,000 State Taxes $28,901 RSU Grant (4 years vesting) $120,000 FICA $14,071 Total $336,598 $132,271 Net Compensation $204,327 Housing Costs $51,840

Your Friend Back in the Middle of Nowhere

Remember Bob, you best buddy from college? He stayed behind, in the middle of nowhere, and keeps making fun of how crazy real estate is in Silicon Valley (he’s right), and how back home there isn’t any state income tax unlike California?

Except Bob, after 5 or 10 years of experience, just barely made it to a 6-digit salary. High salaries are just not that common around there.

After federal taxes (remember, no state taxes), his net income is a paltry $76K. Sure, he lives in a great 3,000 sq.ft house that only costs $500/month. Bob is saving $70K per year. That’s 40% less than you. And the difference is only about to grow over time. In another 10 years, you’ll probably have saved half to a million dollars more. Guess who is going to retire first and not worry about paying for their kids’ college?