Yes, this is absolutely true. Your car, clothing, computers and gadgets, and most of your groceries will be a lower percentage of your discretionary income in the Bay Area than in most other places. Your housing and gasoline will cost more, and maybe your car insurance.
However, the caveat is that housing is so expensive here that it's difficult to save up for a down payment on any kind of housing on a single engineer's salary. A 20% down payment on pretty much anything is more than $100k, and even a highly paid engineer will need a long time to save up that kind of money while also paying high rent. An 80/10/10 mortgage or some kind of mortgage with PMI is easier to achieve, but those have significant drawbacks.
So, if you have significant cash savings, or a home somewhere else you can sell, you can achieve home ownership in the Bay Area (but it will probably be a smaller home than the one you have now). If you don't aspire to home ownership, you'll be fine too -- a software engineer with an average salary can afford to pay rent here, and people who say otherwise are simply incorrect. But if you are just starting your career and move to the Bay Area planning to buy a home anytime soon, you're going to be disappointed.
Given that many people predicate their quality of life on home ownership, that's a pretty big caveat.
It takes about 2 years to save up $100K on a typical Bay Area engineer's salary, if you're fiscally prudent. Figure that $150K/year after taxes is about $110K/year, and live on $60K/year. That's eminently doable even in the Bay Area.
The problem is that $100K is a very low estimate for a down payment in the Bay Area these days. Most people I know are getting parental help to put down $500K down, because with housing prices running around $1.2M, that's what's necessary to get under the $700K jumbo mortgage threshold.
> It takes about 2 years to save up $100K on a typical Bay Area engineer's salary, if you're fiscally prudent.
I'm not sure what you think an average salary is. If you think an average engineer can save $50k cash per year out of his/her net income, you're way above the average I had in mind.
Let's assume an average salary of $120k per year gross. That's about $6k per month net for a single person who takes the standard deduction, assuming no 401k contributions. That's a net income of $72k per year. If that engineer saves $50k, that leaves only $12k for everything else. Saving $100k in two years on that salary, which I think is pretty close to the average, is just not doable.
EDIT: Should have been $22k left over, not $12k. Still not enough to live on considering the cost of rent.
When talking about saving, if you're working somewhere established, you also need to take into account bonuses and RSUs or whatever longer-term retention plans are in place. The size of these boggled my mind coming from the middle of the country as much as the base salary numbers. You should never plan on living off of them, but if you can toss 15k or more (and I've seen much more than that) into your savings just from non-base-salary comp, you're pretty nicely ahead of the game.
Whether or not the established places will toss so much money around if the hiring competition from startups dries up if there's a crunch there, well, that's probably a legitimate question, but I'm not sure that job losses of that size would only hit the Bay Area.
Yes it's expensive, but also yes there really are quite a lot of jobs that pay more than well enough to make up for it.
Why? Fully contributing to a 401k (assuming no company match) would put your "take home" at ~$79,200 instead of $72k following your tax rate (which I assume is roughly correct).
> That's a net income of $72k per year. If that engineer saves $50k, that leaves only $12k for everything else
$72k - $50k = $22k, not $12k.
So with no 401k, you'd have to live on $22k to save $50k/year. When contributing to a 401k, you'd have $29k to live on, which sounds pretty do-able. Add in the fact that you would probably invest these savings, and you can hit $100k after 2 years by saving a bit under $50k each year.
Saving $100k in 2 years is not as outlandish as you make it seem.
How exactly do you figure increasing your take-home pay by contributing to a 401k? Did you forget to subtract the money that's actually going to the 401k instead of your pocket? Even at 90% tax rate, all you are doing is sparing that 90% on the money you are contributing. In other words, you are only actually paying $10 for every $100 you put in, because that other $90 would have gone to the tax man anyway. But you are still losing $10 of your take-home pay.
> How exactly do you figure increasing your take-home pay by contributing to a 401k?
I guess it depends what you mean by "take-home". The original premise was "saving 100k in 2 years". I hope we can agree that saving money in a 401k is saving money, regardless of whether we agree it's "take-home".
I assumed we were talking about money for a home down payment, which would not normally go into a 401k. Getting it out would require a 401k loan, and a 401k loan for a six-figure amount is almost always a terrible idea. The only other way to get it out would be to take an unqualified distribution and get hit with a significant fine.
Most 401k loans become due in full if you leave your job. That traps you in your job until you pay it back, because if you had enough cash to pay the loan outright, you would not have needed the loan in the first place. Unless you have an unusually good severance agreement with your employer that would enable you to pay back the loan if you leave your job or get fired, taking out a 401k loan is a bad idea.
I disagree that $22K net is not enough to live on. It is if you go the multiple roommate/1+ hour commute (i.e. East Bay)/never go out lifestyle. It's not a ton of fun, but it's doable.
Sorry, I live here. I have an average salary for my experience. I can barely save $20k/yr.
My rent+util is about $2000/month. I live in a very /cheap/ 1-bedroom with creaky carpet floors, no insulation, and near train tracks that's far outside SF. (Belmont)
Altogether I spend close to $4000/month if I don't do anything special. /Everything/ is more expensive in this region. Food is expensive for no apparent reason other than to gouge customers. ($6 for a few sticks of butter? When I was in Seattle, it was $2-3.) I eat less fruits here because the prices are high year round. My job doesn't provide lunches, so I have to eat out everyday I'm at work. I mean, even cars cost more here just on Craigslist. In the same way there's an Apple tax, there's definitely a Bay Area tax.
I cannot possibly save $50k/yr for a house. Oh and $150k/yr is not $110k/yr after taxes. It's more like $94k.
I'm saving maybe $20k/yr right now. Ain't even contributing to retirement. Just trying to save for who knows what until I can get a job that pays 50% more.
Huh. We just moved out of a 2/1 in Belmont, 1 block off El Camino next to the Safeway, where we were paying $2050. Sure, once you add utils in it's more, but not a lot more. Splitting the rent with my wife, my share was basically what I was paying in rent for a 'fancy' apartment I shared with a roommate in Santa Clara 10 years ago.
Granted, the house was a good deal, but should be able to swing a 2/1 for 2500 or so.
It's cheaper to live in a larger place with roommates. You pay a premium for single bedroom and living by yourself. I lived in a warehouse with 5 other people for a while to save money.
From a certain point in life living at your own place (no matter if rented or not) with no room-mates is non-negotiable, given the financial means to do so. I'd rather live in a studio apartment at the edge of the city (been there, done that) rather than sharing a villa in a beautiful neighborhood with 5 other strangers. If it matters I'm in my mid-30s now, but started feeling that way immediately after I broke up with my wife 5 years ago.
According to PayScale[1] and Glassdoor[2], average/median salary for software engineer in the Bay Area is around $110K, so it's tough to believe $100K is "the bare minimum".
EDIT: And to add more to the conversation than that curt response:
When I compare take-home pay among various jobs I tend to ignore bonuses (because they're subject to your employer's whim--you don't necessarily get them) and I tend to ignore equity (because it's typically temporary--once you vest it no longer adds to your yearly take-home). To compare apples with apples you can only really compare base salary.
That is nuts to only compare base salary. At the big 4, base salary will be <60% of total comp. It's possible that Goog will hit really tough times and no longer pay the annual bonuses and it's possible they don't offer equity refreshes. But it's much more likely that Goog's business will hold steady (or grow) and the company will want to continue attracting candidates. It's much more likely that employees get refreshes so that their pay in years 2,3 and 4 are higher than the pay they were promised at sign-on. However, it's possible for pay in the 5th year to drop if the initial grant is huge.
I think it makes sense to discount those factors, but ignoring them entirely is disingenuous.
A company offering $100k in salary + $20k in bonuses and $80k in RSUs is paying significantly more than one offering $120k in salary with no bonus or RSUs.
Also, Glassdoor tends to skew low. Here's a more reasonable database of new grad offers which average $109k base for public tech companies. [0]
Like I said, $4000 on a regular month. I spend more many months because of trips, stuff breaks, etc.
Most new grads here make $90k-110k from what I've seen. Yes, you can make more. Yes, there are companies that pay stock on top of that. Those people are not me.
I make ~$110k. Minimal benefits. No stock. I happen to work for a big company too. Not every company here pays well and many low ball as hard as they can. (And succeed at low balling)
Before this job, I made $65k. Companies low ball hard and if you can't interview well, you take what you can get.
You claimed that you make an average salary for your experience, now you're admitting to being lowballed. Which is it?
If you're not a new grad and you're only making $110k, then yes you are making under-market. I'm not disputing what you make (that'd be ridiculous), but your assertion that you're making a standard salary.
> It takes about 2 years to save up $100K on a typical Bay Area engineer's salary
Have you actually done this? Know anyone who has?
This seems completely implausible, outside of some extreme frugal lifestyle cases (I'm talking "eating garbage dumped by grocery stores" level frugal)...
I actually saved up $100K in about 18 months, working at a large Bay Area tech company and living in Mountain View. I don't feel I made significant compromises to do so, either: I had roommates for 6 of those 18 months but lived in a 1BR afterwards, I had friends (many of whom I still keep up with), I owned a car and got out on weekends. I did cook the majority of my (non-employer-provided) meals at home, and my friends tended to like relatively cheap activities like LAN parties, board games, and hiking rather than expensive meals out. I didn't go on any major vacations, but my family lives back East, and so that includes rather expensive airfare at Christmas, Thanksgiving, and 4th of July to see them.
Paycheck calculator shows me that $120K [1] in CA leaves you with $6,220 after-tax monthly income. If you really made about as much, and managed to save ~$5.5K a month, then you spent only ~$660 a month, which is just impossible, sorry. Even if you're sharing a 1BR with several roommates, which, by the way, is not really an option for many.
[1] Googling "average software engineer salary california" shows figures ranging from 107k to 135k, 120k seems to be more or less the median of Google's figures.
It was 2009-2010, so rents were lower, but my paycheck was lower as well (I started at only $100K/year base, compared to the ... well, much higher amount a few years later). After taxes and 401k, I netted $5400/month. 18 months encompassed 2 bonus cycles, so about $40K of that was bonuses, after tax. My rent was $900/month with roommates, and then $1400/month in the 1BR, and total monthly expenditures were about $2K. I was packing away about $3.5K/month; 18 months of that is $63K, +$40K from bonuses = just over $100K.
You must admit that $40k bonus after tax is a huge, atypical amount of money. It makes your effective yearly income to be about $156k.
It reminds me of the mrmoneymustache.com guy, saying "anyone can retire early! Just look at me, all I had to do was get $1M in stock from Cisco!"
No disrespect intended for you; I'm sure compared to some of your friends you lived frugally. The point I'm making is that to duplicate your living standard today, very few comparable developers would be able approach your level of savings.
It's over 2 years. $20K or so after tax per year. A bit over $30K pre-tax.
Not sure what typical bonuses are these days, but I don't think that's out of line for a big tech company. Certainly stock grants can be much more than that, but it usually takes more than 18 months for them to amount to anything.
Thanks for sharing numbers. Wow, that's an amazing bonus, and you should feel fortunate! This is coming from someone who does work for a big tech company. I've never seen anything remotely close to that.
I will unequivocally state that a total comp of $150k+ for a new grad is at the very least, the top 5% of software development salaries for that level of experience.
was the op a new grad? sorry, I missed that. yes, $150k for a ncg in the first year is high. but honestly not that high, and for a 2nd year... doable from my experience [1].
Yes, doable at Google, a company known for being at the top of the market in compensation.
The whole point of the original statement was "I made $X and saved $Y, it's not that hard." But when you examine the X and the Y, they are not representative at all!
It has similar merit to a lottery winner saying, "why can't you win the lottery too? All I did was buy a lottery ticket."
Google pays substantially more than that - matching that number does not put you at the top of the market. Companies paying that much include many of the largest tech employers in the area. Compensation for job switchers has been increasing rapidly since the no-poaching ring was busted, but you have to know to ask for it. Lots of people are anchored from that period and don't know what they are missing.
Well, good for you. I don't think your situation was "average" really, but kudos on the savings :) Coming from a guy in NYC whose monthly expenditures are through the roof...
- rents $2000K/mo 1BR apartment (single but wants some comfort in the Peninsula, no hellish commutes from East Bay)
- transportation $200/mo
- free lunch (and possibly dinner) at the company - eating out and groceries $300/mo
- entertainment $200/mo
That's $2700/mo. Let's round it up to $3000/mo because you're a well paid software engineer and can spend $300/mo on top of what I listed whenever you feel like it.
So far, $36k expenses + $50k savings and you still have $8k left to go on ski trips to Tahoe, Outside Lands and other non-frugal lifestyle expenses.
A decent 1BR on the peninsula (in San Mateo, Redwood City, Mountain View, etc.) is likely closer to >$2,500 a month plus $200/month for utilities/renters insurance. For transportation, I pay $200/month for a 15 year old Civic with liability insurance. If you have a moderately nice car that isn't paid off, you are going to pay >$200/month (especially if you commute daily). If you cook moderately nice meals and drink some alcohol, that food budget is likely going to be >$400/month. Plus going out to happy hour once a week, which isn't that uncommon, can easily cost you an extra $30-50 a week (or more). A good number of people have college debt as well, so add a monthly payment for that. I agree with you that saving is definitely possible when single and making >$100,000. I just think you low balled most of your numbers to prove your point.
If we're talking about low balled figures, I guess we need to consider the income side of the equation as well. The original question depends a good deal on what kind of job you're doing in the Bay Area. If it's someone coming to the Bay Area to work for Google/Facebook or similar, the figure I used is way too low, for example.
"A decent 1BR" - It all depends on the definition of decent. I pay $2k for a 1BR walking distance to Redwood City downtown/Caltrain.
But forget about renting an apartment, if you want to save and you're single, having roommates allows you to rent in the Peninsula for much less than $2k/mo.
Also, I added $300 discretionary spending which lets you to cover some of the things you described, and you're left with $8k at the end of the year.
Can you easily save $50k while spending $3k on rent+utilities to live in a fancy apartment in the Peninsula ? Maybe not, but you certainly don't need to be "eating garbage dumped by grocery stores".
> Maybe not, but you certainly don't need to be "eating garbage dumped by grocery stores".
Nice strawman :) I was specifically talking about the situation conditional on saving the 100k in 18 months, my comment was a response to the comment above it.
Separate point: your figures seem very low. I thought SF is roughly equivalent to NYC in terms of cost of living. In which case 300/mo is a zero off as an estimate for all food expenses.
Sure, I did this (and more if you count my 401k). I don't think I was that frugal: I certainly didn't want for anything, and ate my fair share of sushi.
Like the article mentions, saving a lot is easy if you're fine with a roommate and living in a non-luxury apartment, but if your housing standards are higher than that then it's tougher.
This is, of course, at the compensation levels talked about in the article. Some companies (early stage start-ups, banks) pay much less.
I went from a net worth of <$50k at age 20 to >$150k at 22, while never being particularly frugal at all. Heck, I didn't even have roommates. My monthly spending averaged $4k/m.
NYC, not SF, but the difference isn't huge.
Most people are atrocious with their money by either overspending or under-optimizing.
OK, it all depends on what the cash flow looks like :) You're leaving out that one very important piece of the puzzle...
Also, the average apartment in Manhattan (if you do rent without roommates) is pretty close to your cited figure for total monthly expenses. Which means you either lucked out, or seriously compromised on your living arrangements.
> OK, it all depends on what the cash flow looks like
I was making $150k/yr, which is pretty standard for a developer in NYC.
> Also, the average apartment in Manhattan (if you do rent without roommates) is pretty close to your cited figure for total monthly expenses.
I take it you don't live in NYC. The average is a useless metric because it's distorted by millionaires and billionaires. Just go on Craiglist and you'll find plenty of suitable apartments in the $2-3k range.
Nobody I know pays more than $3k/m for their apartment. Heck, my friend just rented a beautiful luxury single-bedroom for $2.8k.
In my case, I chose to go for a non-luxury apartment for $1.8k/m. This was definitely a deal, but even though it wasn't luxury there was plenty of space and I even had a back yard.
> Nobody I know pays more than $3k/m for their apartment.
Few people I know pay under. We live in parallel dimensions I guess.
> In my case, I chose to go for a non-luxury apartment for $1.8k/m.
I don't know what NYC you live in, but this is non-existent AFAIK. I know someone who went all the way to Rego Park (this is really far from Manhattan) to rent a 1BR for $2.5k.
I did it, paying $3400/month rent & supporting a family. Salary took care of living + unexpected expenses, and stock grants/purchase plans took care of the saving + knowing where to keep the money (thanks, years of scraping by on non-SF-ludicrous pay packets).
edit I don't know what a 401k is good for (I already have two retirement saving schemes in other countries), mostly did staycations since SF is such a tourist destination.
When you say a typical engineer's salary, I feel like you mean a high performer at Google with a rich family.
I make about that much, at a company without free food perks that doesn't give me amazing stock bonuses (my social skills are too bad to negotiate them…) and I live frugally but could never save that much after $2k/mo rent! And there's no huge parental loans for me.
Even with generous wages house prices are rising faster than salaries. And let's be frank about this, when well-paid sw engineers are feeling the squeeze, imagine how awful the economic situation is for anyone in a less fashionable job. There are lots of people who work just as hard as any coder and whose jobs are just as necessary to a livable economy but who face certain economic ruin if they lose their lease - hence all the pressure for a $15 minimum wage. Meanwhile a lot of people who already own property fight tooth and nail against any large-scale building. It's a vicious circle.
A single person does NOT need to spend 3600/month in SF. That's crazy. A studio/1 bedroom can be had for 2500. And if you're willing to compromise on location (i.e. "the ghetto") you can get under 2K.
Families that need 2+ bedrooms and a good/safe neighbourhood are screwed though.
Yeah, a lot of times people seem to talk past eachother because to them, SF = bay area. In reality it's a small portion of the population and even smaller portion of the land mass of the actual bay area.
Even San Mateo, which is not very far away, costs a lot less. And if you work in SF and commute from the East Bay via BART, which isn't too bad, you can save even more.
You would have to be extremely well paid and frugal to save $100K in two years. Sure, it's do-able, but wow. Of course, this is HN, so there's always someone who knows someone's brother's roommate who makes $150K/year at Google but that's a pretty high salary. And to be able to keep $50K of that given the cost of everything? I don't see how it's possible unless you are single, have no kids, no existing debt payments, don't put anything away into IRAs, 401ks, etc. and are are extremely frugal.
But if you do and are, you have $100K. Congratulations. That does you no good when homes are $1M+. Keep saving.
I agree with your premise but I suspect your numbers are a bit off.
Regardless, whether it's 2 years or 3 years, to do the lifestyle you're suggesting takes and incredible amount of willpower to be willing to sacrifice and prioritize. It's passing up that cell phone upgrade. It's cutting discretionary spending to zero. It's passing on happy hour and bringing lunch every day.
While feasible, it's hard.. but suffering for two years to benefit for a decade. Quite possibly worth it.
It's worth pointing out that is just for the down payment. If you want to get ahead in life you need to be "saving" that much and more every year. And oops, your expenses just shot up dramatically because now you're a home owner.
BTW everybody knows about mortgage payments/rent but many forget about property taxes you have to pay as a homeowner. That's about 1.5% of your house purchase cost every year. Of course, there are tax deductions for that but even after them it's still non-negligible chunk of cash on homes approaching $1M.
When I bought my first home my loan (P+I) payment was $1300 per month on average (paid every 2 weeks), which was not only affordable but cheaper than what I was renting at once you accounted for interest deductions! But the taxes were somewhere around $500 a month after the township raised local property tax by the maximum year after year. Due to average daily balance laws and escrow regulations, we often had a substantial amount of money "invested" in to our escrow account.
There was no amount of deductions to make this home an asset. It pushed a good quality home at a great price to something that now remains completely unoccupied.
My situation is 100% atypical - but I more meant to illustrate how big of an impact property taxes can be.
Don't forget about home repairs and renovations, HOA, and services like gardening, etc. depending on what you buy.
It is easy to end up spending double rent on a comparable place. The difference is for now at least the home you buy can grow nicely so you need to do the math on rate of return for that vs other uses of that cash.
And closing/financing fees! If you end up taking a job out of area and decide to sell(understandable as now isn't the right time to be purchasing a rental) you're out the fees.
Oh yeah, those. You pay through the nose when you buy and when you sell. Can easily knock several percentage points off the price you thought you're selling for, or add the same to the price you though you're buying for. One has to be very careful to include those in all calculations. Renting is mostly flat-rate experience, and owning has much higher variance of payments. But owning has its own benefits :)
Those are all expenses your landlord has to pay if you are renting. If those costs plus mortgage is double rent than either landlords are hemmoraging money or something is seriously fucked up with the housing market.
True, but when you rent, the cost is obvious and stated upfront, however ownership has many hidden costs that are not apparent when you consider only purchasing price.
Your comment doesn't really make any sense, because there is no benefit to having a conforming loan. In fact, there are drawbacks. Recent data showed that jumbo loan rates were LOWER than the equivalent conforming loan. We bought with 10% down on a jumbo and because it's not federally-backed you don't have to pay PMI. Mortgage, taxes, insurance, that's it.
Also, I don't know anybody who got that kind of parental help or put $500k down.
That was the reasoning given by a coworker who did this, and he put $500K down. I personally know at least 3 people who've bought Bay Area houses/condos in the $1.1-$1.2M range with multi-hundred-K parental help.
From TFA "the jumbo loan is supposed to come with a slightly higher rate". IMO the rate should be a LOT higher; otherwise PMI is always a losing proposition. Bizarre market forces indeed.
It was certainly surprising/counterintuitive that jumbo rates would be lower than conforming, but even when they're not, it sounds like they're incredibly close.
That said, if someone wanted to throw $500k at me to buy a house, I wouldn't turn it down :)
You should not buy a home unless you are going to live in the same place for 10+ years. Especially if you get a rent controlled apartment, owning a home does not make financial sense in the bay area.
The other big thing to help with home ownership is to get married. With double the income it is a lot easier to save for a downpayment.
If you're a HENRY (High Earner, Not Rich Yet), and have a good credit score (>740), you might qualify for a mortgage with 10% down payment without PMI/second mortgage.
With a frugal lifestyle, 10% should be doable in a couple years, especially if you're okay with living in the East Bay (so the house price is somewhat reasonable).
I'm certainly not agreeing with the value prop of the Bay Area, but PMI is actually not such a bad deal if you have prospects. It's not very much extra a month, and now you can get it removed after you have 20% equity in your home by request.
However, the caveat is that housing is so expensive here that it's difficult to save up for a down payment on any kind of housing on a single engineer's salary. A 20% down payment on pretty much anything is more than $100k, and even a highly paid engineer will need a long time to save up that kind of money while also paying high rent. An 80/10/10 mortgage or some kind of mortgage with PMI is easier to achieve, but those have significant drawbacks.
So, if you have significant cash savings, or a home somewhere else you can sell, you can achieve home ownership in the Bay Area (but it will probably be a smaller home than the one you have now). If you don't aspire to home ownership, you'll be fine too -- a software engineer with an average salary can afford to pay rent here, and people who say otherwise are simply incorrect. But if you are just starting your career and move to the Bay Area planning to buy a home anytime soon, you're going to be disappointed.
Given that many people predicate their quality of life on home ownership, that's a pretty big caveat.