Best and Worst States To Make A Living

MoneyRates has a pair of interesting articles - the 10 best states to make a living - and - the 10 worst states to make a living. To calculate the lists, they took into account the following and then calculated an adjusted-average income for each state:

• Average state wages
• State unemployment rate
• State tax rate
• State cost of living

Guess which state is the best to make a living?

It's ILLINOIS - with an adjusted-average income of $41,986.51.  It is no surprise to me that Illinois was in the top 10.  I grew up in Illinois and then spent three years in Boston for law school.  It was a real eye-opener as to the relative tax rates and cost of living between the two places.  According to this site, Boston is 45% more expensive than Chicago and the cost of housing is 92% more expensive in Boston.  Further, just for comparison, a salary of $160K in Chicago is equivalent to $232K in Boston - and a salary of $160K in Boston is the same as $110K in Chicago.  Frankly, as far as the expenses go, it was like moving to a new (and much more expensive) country.  Based on this experience, I made sure to consider the cost of living adjusted salary when I was deciding where to practice - and I choose Illinois.  However, Illinois is probably not going to be #1 next year - they just raised the state income tax from 3% to 5%.

Texas, Virginia, and Delaware at numbers 3, 4, and 5 were also no surprise.  They traditionally have low taxes and relatively lower costs of living.  One thing that I WAS surprised by was to find Massachusetts at #6 - at $38,664.  However, the article notes that "the high cost of living in Massachusetts is counterbalanced by the highest average wage levels of any state."  MA's $38,664 is not that much less than IL's $41,986 - so it will be interesting to see what happens next year when the IL tax increase is factored in.  The final surprise was the absence of states traditionally regarded as low-tax states like New Hampshire and Alaska from the list.

Turning to the 10 worst states, the worst is Hawaii at $22,107.  Wow.  Double surprise there.  First, I would have thought that the worst would be a high-tax state like New Jersey.  Also, the variance between the #1 state and Hawaii was just HUGE - $41,986 as compared to $22,107 - that's almost DOUBLE!  This will definitely help keep me warm through the cold IL winter - the average IL family is MUCH better off than the average Hawaiian family.

Next, there's a big jump up from Hawaii to #2 Maine at $29,159 - about 32% - and the remainder of the list is in the $30K range.

One state that I was NOT surprised to see on the worst states list was California at #4 at $29,772.  The article cites both the high taxes and the high cost of living in California.  I have friends living there and I can see the toll that the high taxes and high cost of living - especially housing - take on their ability to put money aside.  Some have been out of law school for 15 years and work at top firms, but don't even have their student loans paid off.  It's might be too late for them to pay it off anytime soon, though, because their kids are now going to expensive private schools.

So what do we learn from this article?  The lists can give some insight, but if you look at the four factors upon which the lists are based - Average state wages, State unemployment rate, State tax rate, and State cost of living - you probably don't care too much about the unemployment rate or of the average state wage.  Consequently, the lists should not be taken as gospel.

However, the state tax rate and cost of living figure very prominently in determining how far your salary will really go - and really should be considered if you find yourself in the enviable position of comparing offers.