Wednesday, July 29, 2015

6 Financial Facts You Should Know Before Moving to California

California's housing cost. (Infographic from lao.ca.gov, click here to see more)

She writes…

As a former outsider, I’ve often associated California with Hollywood, Silicon Valley and the Golden Gate Bridge.

But living in the “Golden State” is not only about being close to the entertainment capital and breathing the same air as Mark Zuckerberg and Tim Cook. There are financial factors at play that can make living here a bane or boon, depending on how favorable circumstances are for a transplant or immigrant like myself.

So before you uproot yourself from another state or country, here are some considerations you need to make before moving to California:

California is one of the top 10 economies in the world

CNN Money reports that the United States is the world’s largest economy based on the International Monetary Fund’s World Economic Outlook. Projections show that the country’s gross domestic product or GDP will remain on top until 2020. 

But if California were a country instead of a US state, it would also rank number 8 as of 2014 World Bank data. The state has consistently been among the top economies of the world.

With a roaring economy to boast, California is the sixth state with the highest minimum wage at $9 per hour. This is perhaps why many Americans and immigrants decide to make California their home. This also leads to the second fact, which is…

California is the most populous state in the US

Census estimates as of 2014 puts the total US population at 318.9 million with 38.2 million residing in California.  More than a quarter of the estimated California residents are immigrants— the highest immigrant population among all states.

With millions of residents and more than half of them employable, searching for the job can take awhile and the search can be a frustrating quest. It can also be very unnerving especially for a transplant.  

Take for example San Francisco-based Nina Mufleh, who has impressive experience working for international funding agencies, companies, and royalty in the Middle East but whose hundreds of applications were ignored. She had to creatively craft a resume just to get interviews, but even then she did not end up with her dream company. As she wrote in her blog, it was because she “hadn’t worked at Facebook or Google or studied at Stanford.”

But if anything, Nina’s experience shows that perseverance pays off…not always as planned, but it does.

Then again, even with a stable job, most of your earnings in California may not be disposable income because…

California is one of the top 10 most expensive states in the US

In 2013 and 2014, Reuters and USA Today respectively, placed California as the sixth most expensive state to live.  The Reuters report was based on the 2011 US Department of Commerce data while the USA Today rating was a collection of living indices and pricing data from various sources.

While living in California is not as expensive as living Hawaii, the most expensive state, specific costs of living in California involves relatively higher expenses such as…

Apartment rental in California is one of the most expensive in the US

Every now and then, my cousin based in Louisiana considers relocating to California because of the promise of a higher wage. Then she changes her mind when I remind her that a two-bedroom apartment could probably cost her around $1,500 per month, a steep price compared to her $700 two-bedroom apartment rental in Shreveport.

In California’s High Housing Costs: Causes and Consequences, a March 2015 report by the Legislative Analyst’s Office (LAO), the average monthly rent in California is pegged at $1,240. It can even get as high as $2,000 in San Francisco. This is more than the usual cost in other states, which is $800 monthly.

So even if California employees earn more, they pay more to have a roof over their heads. Not only is apartment rental expensive but…


California real estate is the second most expensive next to Hawaii
California's rising real estate cost over the last 75 years (Infographic from lao.ca.gov)
The same LAO report shows that housing in the state is more than twice as expensive than US average based on January 2015 median home value. Houses here cost an around $440,000— the nationwide average is $180,000.

According to the report, prices are raised because fewer houses are built than demanded by population growth especially in urban centers and coastal areas.

Other elements that contribute to high housing cost are expensive land cost and builders’ cost that include materials, labor and government fees.  The LAO study also cites that communities have the power to reject housing developments, the “complicated procedural requirements” that can arise from California Environmental Quality Act, local government’s preference for nonresidential development and limited lands that can be developed for housing projects.

As the state with the third largest land area and the most populous, I assumed that land and labor would have been cheaper but I guess the sun and sea give it an added allure.

California has the third highest sales tax nationwide

Sales tax in California ranges between 7.5 percent and 10 percent according to LAO’s Understanding California’s Sales Tax. With an average of 8.5 percent sales tax, California comes third after Tennessee (9.5 percent) and Oklahoma (8.7 percent).

The study that came out on May 2015 pegs that with $48 billion of total sales tax from 2013 to 2014, each California resident paid around $1,300.

With all the financial facts on California laid out, it’s tempting to move to a “cheaper” state where half of $1,500 can go to savings instead of apartment rental alone. But as someone who can’t stand the cold, perhaps there’s a point behind the premium of the California sun.#

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