I recently came across an interesting study done by SmartAsset showing how much a six figure salary is really worth in 76 of the largest cities across the U.S, adjusted for taxes and cost-of-living. The different cities were ranked by how far $100,000 actually goes there, from highest to lowest. Some of the results weren't that surprising - for example, most of us probably could have guessed New York City would come in last place - although I'm not sure we would've predicted it would only be $35,791!
But many of the other rankings were a little more eye-opening. For example, Texas held 7 out of the top 10 rankings where $100k went the furthest. The reasoning behind this is that Texas is one of the few states without income tax and the cost-of-living there is 7-14% lower than the national average. Most of California's largest cities, on the other hand, were at the bottom of the list due to having some of the highest taxes and cost-of-living in the country (we're talking 50%-80% higher than the national average!).
I wondered if Lincoln would even make it on a list of "largest cities" - but we did! We even made it in the Top 20 at #18. $100,000 here amounts to $75,464 after adjusting for taxes and cost-of-living. Omaha was right below us on the list at $74,974.
Of course, there are many factors that go into where we decide to call home outside of taxes and cost-of-living considerations. But sometimes (like now), costs can feel like they're rising out of our control. The good news is, there are several things anyone can do to make the best out of their financial situation, regardless of where they live (although, if you're losing half your salary to taxes and super-inflated costs - it might be worth a re-location...):
1. Maximize Retirement Account Contributions
Money you contribute to a 401k or IRA lowers your taxable income. You keep more of your hard-earned money, pay less to Uncle Sam, and get an extra advantage of tax-free growth on your investment until retirement. You can contribute up to $22,500 in a 401k and $6,500 in an IRA in 2023.
*Note: You may be able to contribute to BOTH a 401k and IRA, but there are some income limitations on whether or not your IRA contribution will be deductible. Make sure you talk with your financial advisor before you do this :)
2. Fight Increasing Costs by Investing
No matter where you live, your cost-of-living is going to keep increasing with inflation. If you are holding onto cash, or investing in something with a return lower than the inflation rate, you are literally losing money. Over the past 100 years, inflation has averaged around 3% in the US, but there have been periods of time where that number has been much higher, even reaching double digits between 1970-1980. Higher than average inflation rates are back and there's a good chance they'll linger around for a few years. Why? The federal government increased the money supply by almost 40% in response to Covid, which directly causes inflation and isn't quickly fixed.1 So, what is the solution for you and me? Invest in assets that have historically kept pace with or beat inflation: stocks, real estate, or gold.
3. Plan ahead with a Roth IRA
While a Roth IRA won't lower your taxable income now, anything you contribute gets to grow tax-free til you retire and most importantly, you won't pay any taxes when you start drawing money after 59 1/2! A Roth IRA can be a great way to take taxes out of the equation in retirement.
Rarely is there a financial situation that can't be optimized! Wherever you call home, make sure you're taking control of your financial situation and not leaving money on the table.
If you're curious about where the rest of the cities stand, check out the full list below:
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Resources:
1 https://usafacts.org/articles/what-is-the-money-supply-and-how-does-it-relate-to-inflation-and-the-federal-reserve/https://smartasset.com/data-studies/dd-what-100000-is-worth-2023
2 https://smartasset.com/data-studies/dd-what-100000-is-worth-2023