Workbook: How to Financially Assess Your Job Offer

Introduction

This workbook is a companion to a recent post on how to financially assess your job offer so that the financial impact of accepting a new job is transparent and can help in decision making.

You'll find in this workbook a more detailed description of the key components for conducting the financial assessment. There are example tables to plan out the next 5 years for each of these key components. You can use these instructions to guide your calculations.

Keep in mind that each person’s financial situation is unique, so use this workbook only as a general guide. Consulting a financial professional can also be very helpful.

I. Basic Expenses

These basic expenses are expenses that cover what you and your family spend money on, outside of housing expenses. 

Some items can be estimated based on current expenses, while other items may need to be guess-timated based on expected changes in your lifestyle after you relocate. For example, will you have substantial changes in your work wardrobe that will incur higher costs of maintenance? Another potential change might be transportation costs, as your commute distance and preferred mode of transportation may change after you move.

Some major categories of basic expenses are in this table:

Category	Item	Monthly	Yearly
Insurance	Auto Home
Utilities	Phone Gas/electric Water/sewer Trash Cable/internet
Transportation	Gas Maintenance Registration
Food	Groceries Eating out
Personal	Clothing Health & Beauty
Enjoyment	Vacation Entertainment
Other	Donations Childcare Petcare Misc.
Total basic expenses

The annual increase in basic expenses is likely around 3% to account for inflation. However, if your spending requirements or situations change (such as a new baby or a divorce), your basic expenses can substantially increase or decrease.

II. Housing Expenses

Housing is often the largest expense in a budget. As part of the relocation package, the company had offered me an incentive to purchase a home in that location. However, the massively inflated home prices and the strict terms of the incentive were not attractive to my risk-adverse self at that time.

Thus, I was not ready to commit to buying a house vs. renting, so the financial advisor ran multiple scenarios. The renting scenario can be simpler:

	Year 1	Year 2	Year 3	Year 4	Year 5
Annual rent
Moving costs (switch rentals)
Total housing expenses (rent)

The annual increase in rent may also follow inflation at 3%, although this may depend on the supply and demand of the location as well as the terms of your lease.

The home buying scenario was more complicated and required an assessment of the downpayment that I had, the price of the home, the closing costs, the mortgage interest rate and type (fixed vs. variable), and the length of mortgage (15 years, 30 years, etc.). An online mortgage calculator can help determine the monthly payment amount.

In addition to the mortgage payment, home ownership may include additional costs, both expected (lawn care) and unexpected (HVAC or refrigerator dies - yes, both happened to me!). I realize that not everyone is able to do so, but I like to make sure that I have funds set aside for these circumstances.

	Year 1	Year 2	Year 3	Year 4	Year 5
Mortgage payment
Property taxes
Homeowner association fees
Estimated maintenance costs
Total housing expenses (own)

Local property taxes are typically a percentage of the home sales price and dependent on the location of the home. These and homeowner association fees can be found on listing websites like Zillow or Redfin. The annual increases are typically around 2-3%.

It’s hard to plan ahead for unexpected maintenance fees. One way that I consider how much to set aside may be the cost of a home warranty for major appliances and systems in the house. I may or may not purchase the home warranty policy, but I budget for the cost of potentially needed repairs in this way.

Often, families want to first rent for a year or two and better understand the area before purchasing a home to stay for the longer term. The above tables can be modified to reflect a scenario like this, where the first two years are spent in a rental before buying a home after that.

	Year 1	Year 2	Year 3	Year 4	Year 5
Annual rent (assume annual increase)			x	x	x
Moving costs			x	x	x
Mortgage payment	x	x
Property taxes	x	x
Homeowner association fees	x	x
Estimated maintenance costs	x	x
Total housing expenses (rent then own)

III. Debts

Aside from the basic living and housing expenses, debt repayment may claim a high proportion of income. For some families, this could include car payments or the mortgage or loans on their current home or vacation home if they don’t intend to sell these after relocating. 

Those who are on an income-based repayment program for student loans may need to recalculate their payments given a new salary. Couples may reconsider their tax filing status (head of household, filing married separately, etc.) and balance their tax burden against the impact on their loan repayments. 

	Year 1	Year 2	Year 3	Year 4	Year 5
Car payment(s)
Student loan payment(s)
Other mortgages or loans
Credit card debts
Total debt payments

IV. Income, Taxes, and Deductions

Finally, the numbers from your offer letter come into play! 

Likely, you’ve been given a base salary and a bonus target. If you have friends or people in your network who work at the company, you may be able to ask them about the expected annual increases in salary or recent history of salary increases (e.g., 2% annually).

Human resources may be able to share whether the company has typically met its bonus targets in recent years. This information can help you estimate the amount of bonus pay you may receive, assuming that you meet the expectations at your performance review.

Some job offers will include a one-time signing bonus and/or a lump sum for relocation expenses. These and other relocation benefits (such as loans and stipends) may be considered taxable income.

Income from the new job, as well as any other income of the individual or family, should be assessed for tax burden. My tax burden calculation changed substantially depending on whether I decided to rent vs. buy a house because of the mortgage interest deduction. The IRS has a calculator for estimating federal tax withholding. TurboTax is a good resource for estimating taxes.

In addition to federal income tax, another deduction is FICA (Federal Insurance Contributions Act), which funds Social Security and Medicare. Income taxes are imposed by most states and localities, and some states like CA and NJ also deduct a disability insurance tax.

The difference after subtracting the taxes from the total income is the after-tax income that can be spent or saved. 

	Year 1	Year 2	Year 3	Year 4	Year 5
Income       -Salary      -Bonus      -Other income
Subtract       -Federal income tax      -State income taxes      -FICA
Difference = After-tax income

However, this after-tax income amount, or disposable income, is usually not equivalent to your paycheck. There are typically other deductions to incorporate into the calculation.

The company’s employee handbook or benefits package can list the employee’s share of the costs for benefits, such as medical, dental, and vision insurance, pet insurance, disability and life insurance, legal services, among others. These are typically deducted from each paycheck.

Retirement or pension benefits, such as a 401K plan and match, are likely also described in the employee handbook or benefits package. Depending on an individual’s savings and investment goals, these may be very important considerations, and these employee contributions may be deducted from the paycheck as well. 

Subtracting these deductions from the after-tax income results in the amount on your paycheck or what actually hits your bank account if you have direct deposit.

After-tax income	Year 1	Year 2	Year 3	Year 4	Year 5
Subtract       -Benefits (medical, etc.)      -Retirement contributions
Difference = Paycheck amount

What is not considered in this description of income, taxes, and deductions is company stock options or long-term incentives. These may be included in job offers and have a variety of rules for vesting, when they may be exercised, and what is considered taxable income. 

V. Putting It All Together!

Subtracting the basic and housing expenses and debt payments from your paycheck amount will show you whether your excess cash flow, positive or negative, and can give you a clear picture for the next 5 years.

	Year 1	Year 2	Year 3	Year 4	Year 5
Paycheck amount
Subtract       -Total basic expenses      -Total housing expenses      -Total debt payments
Difference (excess cash flow)

This assessment will also help you determine whether you are able to meet other financial goals or obligations not covered in these broad categories. These might be retirement savings goals to be achieved outside of your company’s retirement or pension plan, such as Roth or backdoor Roth IRAs, taxable investment accounts, or other investment vehicles. Financial obligations can include supporting other family members’ living or educational expenses.

Final Notes

If you have multiple job offers and want to compare their impact on your financial life, do this exercise for each one so that you can see the numbers side by side.