Income or Outlay

I've written about this type of financial fight before. This one's different.

I recently visited a frugal forum discussion regarding money—a woman was wondering where she and her husband could move to so he could make more money. Naturally, all sorts of answers and the usual conventional advice was given, but nothing was said about outlay. Everyone presumed she was already frugal, as did I, seeing as how she was posting in a frugal forum.

“Where do they pay more for this type of job?”

(………….record screech……………)

We always seek to do the easiest thing first, and the knee-jerk reaction is always to assume one has to make more money to satisfy a deficit. Let’s look at the flip-side of earning, which is spending—income versus outlay.

This woman automatically reached for the gun of “more income” when the equally viable weapon of “lowering expenses” would’ve done the same job, only with additional benefits. The additional benefits I’m speaking of are lower taxes, and this is how I got there: when you make more money, you get taxed for it. Sometimes, you throw yourself into a higher tax bracket, or even the dreaded AMT, just by making a few more dollars a month after taxes.

By lowering your expenses (outlay) instead of going for more pay, you save tax money—if normal, conventional frugal measures aren’t enough to do the job (and even some UNconventional ones too), perhaps it’s time to look for a cheaper place to live, not a better-paying job locale. By moving to a lower cost-per-living place than the one you live in now, while able to preserve your current job or transfer to a lateral position, you actually make more money without incurring taxes. In some cases, even taking a lower-paying job can yield the same savings, because the cost of living will be considerably lower, and will make up the difference.

Example: a GS-11 civil service worker grossing $52k/year in a mid-Atlantic state can find a cheaper cost of living by moving (transferring) to Alabama, reducing his gross pay to $48k/year for the exact same job. The difference in pay was because the mid-Atlantic state tacked a cost-of-living adjustment to the original job salary, meaning this is how much MORE the area cost to live in compared to the U.S. average. Moving to Alabama would yield $4000 less annually, but the difference in cost of living would more than make up for it (by 31%). Also, the tax savings would add to it—after the move, there would be $4000 less to be taxed (by state AND federal), and the food, medical, gas, housing, utilities, and taxes would all be cheaper to boot! Frugal living would only enhance the cost-of-living discount, so by transferring to Alabama, this worker could potentially cut his living costs by almost half!

Next time you need to “make more money”, instead investigate whether or not you’re really doing all you can in the expenses or outlay realm first. Making more money means paying more taxes on it, and there is another way to come out ahead, and tax-free—it may be a more uncomfortable way, but it’s a way nonetheless. Besides, in some circumstances, a job-related move can be written off on your taxes (see a tax advisor first).

If you live anywhere in the west coast states, Colorado, or the New England states, a move just about anywhere else will certainly be cheaper than where you live now—your cost of living is THAT high. For the rest of us, look to states that border the Mississippi River, the Gulf Coast, and the Ohio and Tennessee valleys. To use a political term, blue states are usually the most expensive ones, but they get paid more and taxed more.