How to Evaluate a Cost of Living Package
Have you been offered a job or promotion that involves relocating? Congratulations! Depending on your employer, position, and salary level, you may be offered a relocation package to help cover costs associated with moving, either in the form of a lump sum, or a more defined benefits package.
Some relocation packages cover just a single aspect, like a moving truck. Others cover just a small percentage of your overall moving costs. Others are comprehensive, paying for a full-service moving company, childcare assistance, a settling-in allowance, a relocation mortgage, or down payments on a new house.
KEY TAKEAWAYS
- It is well within your right to negotiate better terms when an employer offers a relocation package for moving to a new area.
- The cost of living is an important factor to consider when relocating for a new job.
- Some companies offer cost-of-living stipends, adjustments, or bonuses to help cover the costs of moving to more expensive cities.
- When moving to a city with a lower cost of living, it may be acceptable to take a position with a lower salary.
- Evaluating the opportunities for career growth, as well as the potential for an improved quality of life, can help you decide if it makes sense to relocate.
Cost of Living Considerations
Regardless of the relocation package, it is well within your right to negotiate better terms. There are many factors to consider, like the distance of the move, the number of family members, and whether you’ll need assistance selling your existing house.
The cost of living in your new area is an important consideration. It represents the amount of money that it will take to sustain a certain level of living, including basic expenses for goods and services such as housing, transportation, food, clothing, and household goods. The cost of living is often used to compare expenses in one city versus another. New York, San Francisco, Honolulu, Chicago, Washington D.C., Oakland, CA, Seattle, Arlington, VA, and Boston top the list of most expensive cities.
Online cost-of-living calculators can help you project how far your salary will go in another city. Assume you live in Cleveland, Ohio, for example, and you’ve been offered a job in Manhattan, New York. According to CNN’s calculator, if you currently make $75,000 a year in Cleveland, you need a salary of more than $198,000 to keep up with the cost of living in Manhattan, where you would pay 34% more for groceries, 564% more for housing, 18% more for utilities, 24% more for transportation, and 4% more for healthcare. If your new job was in Los Angeles instead, you need a salary of $115,000 to compensate for the 178% increase in housing, 14% higher utilities, 23% hike in transportation, and 5% increase in healthcare.
While cost-of-living calculators can help you compare basic costs, don’t forget to consider other factors, such as school fees, taxes, the availability of public transportation, entertainment, daycare, and the employment outlook for your spouse or partner.
Cost-of-Living Stipend
Some relocation packages include a cost-of-living stipend (or cost-of-living adjustment) to help cover increased expenses. Your company may offer a one-time lump-sum relocation bonus or pay an allowance for a specific period of time, after which time your salary will have (theoretically) increased to accommodate the new location. For example, if you are a Clevelander and you take a job in Los Angeles, your employer might offer a monthly stipend of $1,500 for three years to help offset the increased cost of living.2
Higher Salary
While some companies provide a cost-of-living stipend, others simply pay higher salaries to compensate for increased living expenses. If you accept the job in Los Angeles, for instance, you may be able to negotiate for a higher salary based on the cost-of-living increase. In our example, it would take a salary closer to $115,000 just to match your current salary.2
In addition to a pay increase, your employer may offer a better comprehensive benefits package, which might include more vacation days, stronger health coverage, stock options, education reimbursement, performance bonuses, and a signing bonus.
The Bottom Line
Moving is always an expensive endeavor that should be covered by a company that expects you to relocate to a new city. But it’s important to consider differences in costs of living. A smaller salary may be sufficient if you’re going to an area with a lower cost of living. But if you’re relocating to a more expensive city, your benefits and salary package should reflect that. Your employer may sweeten a relocation package with a cost-of-living stipend, a signing bonus, or offer a larger salary to compensate for a higher cost of living. But if a benefits or salary package doesn’t adequately cover the higher costs, you may have to weigh the longer-term benefits of making a move by asking yourself critical questions:
- Can I and my family financially get by until I am promoted or given a raise?
- What type of job growth can I expect from this new position? If I make a sacrifice now, could I benefit later?
- Can my spouse find a job that will help compensate for the higher cost of living?
- Will my improved quality of life compensate for a lower standard of living and less buying power?
The more a company needs your talents, the better positioned you are to negotiate. If you were recruited, have your recruiter take the lead. If you’re negotiating on your own, focus on what you can bring to the company. Instead of declaring that you should get more money, try something like: “My proposed salary and benefits package will allow me to work longer hours and be more productive.”
