You may be considering relocating to a new residence. Moving can be stressful and has been recognized as one of life’s major stressors (Holmes & Rahe, 1967). Additional stressors often accompany a move, such as marriage, divorce or retirement. A side-effect of high stress levels can be a temporary deterioration of objectivity or sound judgment. When considering relocating, careful planning and research are essential to maintaining restoring one’s ability to make informed decisions.  This article suggests economic questions which should be answered prior to move. 

Financial Analysis

Benefits of a Financial Analysis:

This article emphasizes the importance of obtaining an individualized, accurate, after-tax (federal, state, local and Social Security taxes) financial analysis of the changes in your living situation resulting from a job-related move. The analysis should consider all family members–including children. Will your spouse need to find a job? Will your children require additional school- or activity-related expenditures? Only by obtaining an accurate analysis can you make the decision which is best for you. The analysis can also be a valuable tool when negotiating with your new employer. It can help the employer better understand what they’re offering you.  

Don’t settle for superficial, before-tax financial analysis. Such an analysis will inaccurately represent your new situation, perhaps leaving you with an unacceptable living standard. Don’t accept the argument, “Others in this area in this job earn this much. . .” If your new employer could find someone in the area, they wouldn’t be offering you the job! If you settle for a cursory analysis and end up with less than what you’re accustomed to, you could be unhappy, less productive, back in the job market, or relocating again. The following pointers help underscore these important concepts. 

Cost of living and salary considerations:

A lower salary may be a blessing in disguise. If you’re moving to an area with a lower cost-of-living, you may be able to increase your disposable income, providing more money for essentials and investments. If you’re moving to a higher cost of living area, you’ll want to be equitably paid, or at least have the potential to soon offset the increased cost of living. Your analysis should include changes in:  

Recurring income and expenses:

• Income from all sources: salary, wages or business income.
• Automobile and transportation expenses: personal and commuting distances, insurance premiums, maintenance, employer reimbursements, depreciation, etc.
• Benefits: medical, dental and life insurance, retirement, day care.
• Housing:
  • Compare your current home with a similar one in a similar neighborhood.
  • Be aware of increased rent, mortgage payments, property taxes, insurance premiums, upkeep and maintenance, etc.

Non-recurring (one-time-only) income and expenses:

• Capital gain and capital gain tax upon the sale of your current home if you purchase a lower-priced home.
• Capital gains and capital gains taxes upon the sale of other assets. For example, you sell a rental home because you can’t manage it from your new location.
• Moving expenses: movers, hotels or temporary living quarters, travel expenses, telephone activation, etc.
• Non-recurring fees associated with purchasing or leasing a new home.
• Non-recurring fees associated with selling your current home.

Ideally, you’ll be reimbursed for non-recurring expenses, and your new salary will provide you with at least a familiar standard of living

Conclusion

The importance of obtaining an individualized, accurate, after-tax analysis of the changes in your living situation can’t be over-emphasized. The money invested in such an analysis will pay you dividends for years to come. By now you may be thinking that a financial analysis is a good idea. Where do you go to get one? The professional you chose is ultimately up to you. Before making your choice, you may want to visit these web sites for ideas. These web sites are included here for informational purposes only. The author does not recommend or endorse them. 

Certified Financial Planner (CFP) Board of Standards home page. This is a resource for information about CFP licensees and the financial planning profession. 

National Association of State Boards of Accountancy home page. NASBA serves as a forum for the nation’s state boards of accountancy which administer the Uniform CPA Examination, license certified public accountants, and regulate the practice of public accountancy in the United States. This site includes information about CPAs in your area. 

References 

Homles, T.H. and Rahe, R.H. 1967. “The Social Readjustment Rating Scale”
     The Journal of Psychosomatic Research, Vol. 11, Pergamon Press, Ltd.