How can one not be a sports fan growing up in Bristol, CT? “Disruptor” is an over-used term among the business consultants and Shark Tank aspirants, but ESPN changed sports media, sports production, and the breadth of viewable sporting activity. Programming rotated from the early days of televised USTTA Table Tennis toward more popular entertainment, and eventually ESPN’s acquisition by Disney. Sports programming is so economically consequential that ESPN just offered contracts reportedly totaling $165 million for Buck and Aikman to work a night a week during the NFL season. Lucky are we to live in a country with fortunes created from the entrepreneurial spirit.
Trevor Stoneman was born in Bristol in the mid-1990s and every morning of his adolescence was spent sitting at the kitchen counter catching up on the prior day’s sporting events while eating a breakfast of cheesy microwave eggs and toast prepared by his mother. Ready for school, every day was game day for Trevor. Between class periods Trevor got caught up on stats, snuck video clips of the latest Stephen A. segments, and followed Mel Kiper’s mock draft predictions. In his day dreams, friends called him “Boomer.”
Trevor went to the SEC for a university education and became a sports management major, of course. Nobody told Trevor to get into the business school. Graduating in 2017, Trevor parleyed his education into a full-time position at a Waffle House in Covington, GA., but he has kept his options open. Today, Trevor is a constant presence on Monster.com and LinkedIn, in search of a position related to sports and entertainment. He just got lucky.
Job Offers in Different Locations
Trevor has two new pending job offers as an “event coordinator.” One job is located in Houston and the other in Boston. On the professional entertainment dimension, the decision for Trevor is complicated. Salary is important but so is proximity to pro sports. He never liked the Celtics or the Pats, preferred the Yankees, and loves the Cowboys. Trevor is close to his two sisters who live in the Boston area, but he foresees a robust event and entertainment business in Houston. The economics further complicates Trevor’s decision. He expects it will be cheaper to live in Houston than Boston. But is it?
Trevor needs a more discerning look at his choice and assess how his standard of living will differ between Houston and Boston. Here is tabular view from Sperling’s Best Places Rated for these two cities. Taxes are not considered in the Overall Index value and the Miscellaneous category considers expenses such as restaurant spending, clothing, and entertainment. For this analysis, I added to an Online/Location Irrelevant category for any budget items unaffected by location, e.g., streaming services, life insurance premiums, or existing amortized loan payments for student loans, auto loans, and so forth. The cost to live in Boston isn’t even close to Houston. But, if he gets paid enough……
Trevor’s job offer numbers are different. Event Planning 101 in Boston has offered Trevor a first-year salary of $88,000 with a “401(k) matching” employee benefit retirement package. Event Planning 101 matches an employee up to 4% of annual salary and Trevor intends to contribute 4% to maximize the match. The Houston firm, Shade Tree Events, has offered Trevor a salary of $64,000 with a 401(k) plan that matches up to 2% of annual salary. Like the Event Planning 101 job, Trevor intends to maximize the 401(k)-match offered by Shade Tree. Trevor expects future salary growth to match general inflation.
Geographic Effect on Actual Spending
The details of how Trevor foresees his budget in Houston and Boston is detailed on a spreadsheet on my website. Houston costs are treated as the base case and Boston is adjusted with the Best Places Rated adjustments. Given how Trevor prefers to spend his money, his annual spending is 87% higher in Boston (60% is the prediction for the average person), and his tax liability is about $10,000 higher in Boston attributed to a MA state income tax and higher federal and FICA taxes on his higher income.
Geographic Effect on Living Standard
The key question is whether Houston or Boston produces the highest, sustainable lifetime living standard. A better living standard is always the target in Personal Finance Economics. A couple of additional assumptions are important to arrive at Trevor’s preferred economic solution. First, “lifetime” for Trevor means an assumed max age of 95 and a preferred retirement just before age 70. Trevor is 24 so he is looking at 45 years of income production and 25-years of retirement where the sources to pay his bills are social security retirement benefits and 401(k) withdrawals. Second, it is assumed Trevor would earn an annual nominal return on 401(k) plan assets, on average, 3.75% above expected, long-term information. Along with future salary increases running parallel to inflation, and the normal indexing of social security benefits for inflation, there are long-run inflation hedges built into Trevor’s best plan, regardless of city.
On economic terms, the better choice is clear. Today’s value of Trevor’s lifetime living standard is $2.36 million in Houston and $1.08 million in Boston.1 On the margin, the savings on lifetime housing, taxes, and Medicare part B premiums, when living in Houston creates a dramatically higher level of lifetime discretionary spending. Line 17 in the table above illustrates this result for the current year. Trevor’s optimal level of total spending in Houston is $60,460 for the current year when put in the context of his entire life, permitting him to spend an additional $5,128 this year for fun. His choice how to do that; only he knows what brings him pleasure. If living in Boston, Trevor’s optimal level of spending is higher, but his income requires he cut likely spending dramatically, about $20,000. How should he do that? His choice and a tough one. Most likely more cost-effective housing which would likely require him to move from the metro area to a suburb like Salem and incur new transportation expenses, but overall, he would have alternatives for basic living at lower cost.2
It’s About the Methodology
Geographic choices are put in front of households often. Job promotions, the advent of retirement, and the choice of step-down community post-retirement, are common. The work-from-home alternative raised higher during the pandemic has made this life choice relevant to more households. Cost-of-living estimators can inform the decision, but alone are insufficient to solve for the highest living standard. The best geographic choice on strictly economic terms requires life-cycle modeling, too. Illustrated in prior posts, individuals and households can do that for themselves. If after a couple of years in Houston, Trevor has an offer to move to LA, he knows how to value it: consider the relative costs-of-living, approximate actual annual spending in both cities, and calculate the highest attainable living standard in both cities given all the financial differences.
If Trevor has a CPA, CFP, or other investment advisor, then hopefully they can help. The rate of widespread adoption about how to think about the economics of moving will increase when CFPs and private wealth advisors raise the value of their services by introducing decision tools into their practices.
If you are interested in Trevor’s complete financial plan, send me an email, bob@finplanbook.com, and a pdf of his results will come your way.
For the curious, Salem, MA’s housing is about 50% lower than Boston and is about 20% less expensive overall.
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