Cost of Living Comparison: How to Calculate Your Real Salary

## Why Nominal Salary Is Misleading

A $200,000 salary in San Francisco and $120,000 in Austin do not represent the difference in standard of living that the numbers suggest. After accounting for taxes, housing, and cost of living, the Austin salary may provide a better lifestyle.

## Step 1: Calculate After-Tax Income

Use SalaryFYI's calculators to determine net pay:

| Location | Gross | Federal Tax | State Tax | FICA | Net |
|----|----|----|----|----|----|
| SF, CA | $200,000 | $33,800 | $16,400 | $11,900 | $137,900 |
| Austin, TX | $120,000 | $18,000 | $0 | $9,180 | $92,820 |
| London | £90,000 | £21,960 | N/A | £4,960 (NIC) | £63,080 |
| Berlin | €85,000 | €16,800 | N/A | €17,000 (SS) | €51,200 |

## Step 2: Subtract Fixed Costs

Housing is the biggest variable between cities:

| City | 1BR Rent (Central) | Monthly |
|----|----|----|| San Francisco | $3,200 | $38,400/yr |
| Austin | $1,800 | $21,600/yr |
| London | £2,200 | £26,400/yr |
| Berlin | €1,400 | €16,800/yr |

## Step 3: Calculate Discretionary Income

| City | Net | Housing | Other (est.) | Discretionary |
|----|----|----|----|----|| SF | $137,900 | $38,400 | $24,000 | $75,500 |
| Austin | $92,820 | $21,600 | $18,000 | $53,220 |
| London | £63,080 | £26,400 | £15,600 | £21,080 |
| Berlin | €51,200 | €16,800 | €12,000 | €22,400 |

## Step 4: PPP Adjustment

For international comparisons, use Purchasing Power Parity:

PPP-adjusted discretionary = Local discretionary x (US Cost Index / Local Cost Index)

This tells you how far your money goes in local purchasing power.

## Key Factors People Underestimate

### Healthcare

In the US, employer-sponsored insurance costs the employee $3,000-$10,000/year in premiums plus deductibles. In most European countries, healthcare is included in the tax/social security calculation.

### Childcare

Full-time childcare costs vary from $25,000+/year in US cities to heavily subsidized or free in Scandinavian countries.

### Transportation

Car-dependent US cities add $8,000-12,000/year in car payments, insurance, gas, and parking. European cities with good public transit cost $1,000-2,000/year.

### Retirement Savings

US workers must self-fund retirement through 401(k)/IRA. Many European countries provide substantial state pensions funded by social contributions already deducted.

## Key Takeaways

1. Always compare after-tax, after-housing income.
2. The US gross salary advantage shrinks dramatically when accounting for healthcare, childcare, and retirement.
3. European social security contributions buy real benefits.
4. Housing costs create the biggest difference between cities.
5. Use SalaryFYI's tools to run personalized calculations for your specific situation.