A few years ago, we did a calculation on what it costs to live in San Francisco, one of the greatest cities in the world. A few years have passed, and much has changed. The City, the world, and probably even you are very different from when we took a look at the economics of living in San Francisco. Today, we'll take a look at what it takes to own a house and possibly raise a family as a married couple in San Francisco.
TL;DR: If you make $600K/year, live frugally, and send your 2 kids to public school, yes. Private school, maybe.
How Much You Make
Let's assume you and your spouse are both gainfully employed, each making $300,000/year. Or maybe one of you is working and making $600,000/year. We'll ignore any (potential) windfalls from stock options at this point and assume this is your (adjusted) annual compensation. We assume that you'll fully contribute to your company's 401K plan and it's employee stock option plan (at $25K/year).
The good news: You and your spouse (assuming you are both working) are saving $88K year (not adjusting for taxes or appreciated stock gains from your ESPP). Congratulations!
The bad news: After taxes/deductions, you only get to keep $289K.
You Buy a House
You're an adult now, so it make sense you want to own a home -- at least join the club of people that have a mortgage instead of renting. In San Francisco, a modest 3 bedroom, 2 bath starter home (perhaps 2000 sq/ft) will cost you about $2,000,000. Assuming you are able to make a 20% down payment of $400,000, it will cost you about $125K/year (and this is with a 5% interest only loan). Your monthly housing costs will be about $8700/month.
Basic Living
Living in San Francisco is expensive not just because of housing -- everything is a little more expensive than the rest of the country. And, for whatever reason, you like to "live larger" than others in other parts of the country. On average. Dinner at Saison will set you back $398/person. Drinks at Black Cat are $15. I'm sure our estimates are often high and often low -- there's a lot of variability. For example, do you own two cars or one? What kind of car? Are you including loan payments? What about rideshare? We guestimated $20K/year for your automobile/transportation costs. In totality, we're guessing you'll spend about $125K/year for the two of you, not counting housing. YMMV.
So, given you after savings take home pay is $289K, and your spend is only $249K -- hooray! --You're in the black by $40K.
More good news: Assuming you qualify for the full mortgage interest deduction (the deduction is capped by the interest on up to a $750,000 loan) , you save an additional $17,625 in taxes plus another $8800 for a property tax deduction. So you save another $26,505. So, you are net $66,505 in the black!
But wait...
What about Kids?
Tick, tock. Tick, tock.
You're in your thirties now. And the desire for kids grow every day. Congratulations on your coming of age entry into full adulthood. Thank goodness your employer has provided you with stellar insurance, possibly including IVF/IUI options, pregnancy coverage, and a great family plan.
And your life plan probably calls for two kids. What's this going to cost?
Since both you and your spouse are working, a day care or nanny plan are likely needed. Call it $35K. And, maybe the incremental cost (food, clothing, summer camp, etc) will be $20K. So, maybe you are in for another $55K/year for two kids.
Awesome -- you are still spending $11K/year less than you are taking in.
...And Private School?
Apparently, many parents are choosing to send their kids to private school. Getting into a great/acceptable public school is literally a lottery in many cases. So, what is this going to cost? I'm told this is between $20K and $50K per year, per child. The base cost is highly variable depending on where you send your kids, plus there are multi-kid discounts and possibly "negotiated rates." Let's call it $30K/kid.
Your "all in" spend is $365K. Your tax deductions are $26K, so your net spend is $329K. Your take home earnings are "only" $289K.
So, now you are running a $50K/year deficit. Bummer!
Tap the Savings and Hope for a Windfall?
So, how do you make up for this shortfall? Well, you are saving $50K year with your ESPP. And, you're employer is likely buying stock for you at a 15% discount. So, maybe you will choose to use this money. Further, hopefully, your company ('s stock price) is doing well, so you are actually earning more.
Finally, perhaps those stock options or RSU are worth more (not less) over time, so you cash in on the success of your company. After all, it is the equity incentives that have drawn us to San Francisco. We must have hope and dream big.
Does It All Add Up?
The two million dollar house in San Francisco is surprisingly small in San Francisco. And the down payment may be hard to save for. And you may want something bigger and better. Say $2.5 million?
You could trim your lifestyle back -- seems like "keeping up with the Joneses" is an unstated driver for many of us.
The big unknown is public school vs. private school.
So, if you can live in a modest home, trim back your living standards, and send your kids to public school, this is doable. With private school, it's a big stretch.
And, of course, is making $600K/year reasonable?
Last maybe you can "wait it out," and hope those stock options convert.
Or move to Modesto.
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