For most of us, it’s hard to remember what the morning commute felt like.
It’s been five months now, and we’ve ditched the drive/walk/ride into work in favor of sleeping a little later, and sitting at the kitchen table in pajamas to check our first emails.
To say the least, Covid has changed things. Work from home policies included.
Just like 9/11 changed airports forever, it seems like we’re on track for this pandemic to change the office environment forever as well. Working from home is no longer exclusive to the self-employed or the freelancers; lots of tech employees have new work from home policies that allow them to work anywhere, as long as there’s an internet connection.
As these changes become more permanent and we settle into the “new normal” of what it’s like to work for a tech company, a lot of tech employees are starting to think about what that means for their career and finances.
For example, one of our clients is waiting to decide if or when to pursue their next job, because the company she’s currently at is becoming more accommodating to remote work. Another client’s company isn’t sure when their employees will be able to return safely, so they let her move to a completely different state, away from the major city the company is based in.
These work from home changes seem insignificant at first, but they can actually have major effects on the long-term financial plan of tech employees.
1. Use Working From Home to Advance Your Career
When you’re a tech employee, your career moves are often the most important in fulfilling your financial goals:
Your salary increases, your stock options improve, and you get offered more benefits. With a good financial and tax planner, you can use the upward career mobility to negotiate better comp (salary and stock options), save money, invest wisely, and achieve financial freedom.
Before the Covid outbreak, a lot of tech employees were heavily location-dependent. So much so, that a lot of our content on this blog specialized around helping you manage your money in the high-cost locations of San Francisco, Silicon Valley, and New York.
After all, most of the tech jobs were located in these cities, so you needed to be present there to advance your career. You were limited on where you could live if you wanted a successful career. But now that work from home is an option, you have a lot more flexibility in where you live, without necessarily limiting your career.
I should know; I’ve been working from home and working remotely for a long time.
Even though KB Financial Advisors is based in San Francisco (where I traveled to often, before Covid), I live in Tennessee. Here, my family and I enjoy a lower cost of living, but I still get to help clients like you all over the country: it really doesn’t matter where you live. My career as a financial advisor for people based in San Francisco, Silicon Valley, or New York is not limited.
With remote work as an option, you can still earn the salary you’d attract in a tech-hub city, but with a significantly lower cost of living. When this happens, everything about your financial life becomes much easier, and you can achieve your goals a lot faster. (You can even take a job at a company located across the country, without having to move.)
2. Save Money on Real Estate
Ever since we’ve been in business, one of our biggest client concerns has been the cost of real estate in San Francisco and New York. When even modest homes cost over $1 million, home ownership becomes difficult. (In fact, a lot of people had to maneuver ways to use their company stock options or IPO to buy a house.)
With an extremely high down payment and mortgage payments higher than what they’d pay in rent, a lot of people felt trapped in not being able to purchase a home.
However, with work from home as a possibility, moving to a place with a lower cost of living makes buying a house much easier. You’ll be able to make that investment sooner and spend less, which will make it easier to save towards other goals.
But just because it’s easier and cheaper doesn’t necessarily mean you should rush to the suburbs or a rural area to buy a house: there’s a lot to think about.
For one, buying a house is a HUGE commitment. I’m not a huge fan of “rules of thumb,” but there’s a reason why some people say it’s only a good idea to buy if you’ll want to live there for X number of years. The longer you stay in a house, the more likely it is that buying (instead of renting) is the right move.
But there’s also no need to rush into buying. It’s also 100% valid to move to a lower-cost area and continue renting until you decide buying is right. You’ll still save a lot on housing, and you’ll give yourself more time and financial freedom to decide if, where, and when to buy.
Another option is to continue renting your main residence and purchase investment real estate. You don’t have to worry about buying the perfect house in the perfect location for your life, but you can start diversifying your portfolio with a real estate investment. (Bigger Pockets is a good place to learn more about investing in real estate.)
This way, you keep your career and your location flexibility, but you’re still doing smart things with your money in a more affordable real estate market.
Buying a home is a lot to plan for–even if it’s just an investment property–so get in touch with one of our financial planners to help you make the right moves.
3. Save on State Income Taxes
As a tech employee, your largest single expense category is taxes.
You spend more on tax than you spend on anything else. In fact, taxes matter so much in a financial plan, that a big part of what we do is making sure people aren’t getting slapped with an unexpected, unaffordable tax bill.
So, now that remote work is more available, moving to a state with lower income taxes is one of the best things you could do for your financial plan.
You can’t just casually do it though; most states are pretty aggressive about collecting your taxes (even more than the IRS). You have to make sure you move in a way that clearly says “I am not coming back.” If you don’t, you may be audited. Renting a cheap apartment in the middle of nowhere to remote work won’t cut it. You have to make it official.
Here’s how you do it:
After you choose your new state, it’s a good idea to send emails to people letting them know you’re moving.
Next, you’ll need to change everything official to the new state: your mailing address, your driver’s license, and your voter registration. Then, change your payroll and have your company start your tax withholding in the new state.
Beware of Rules On Stock Options
This varies depending on the state you move to, but even if you officially move to a new state and set up your payroll withholdings, you may still owe state income tax to the state you leave on stock options or RSU.
This rule varies based on the type of options you have and which states are involved, but it’s good to know that you may still owe tax to the state of residence at the time those options were granted, even if you lived elsewhere when you exercised them. (This is where having a financial planner on your side can really help you out.)
Which Work From Home Financial Moves Should You Make?
The cool thing is that you’ve got seemingly unlimited choices where you had very few choices before. The effects of Covid-19 have been unfortunate on the economy, of course. But there is a silver lining: it’s given you more freedom to choose the lifestyle you want, and to achieve your financial goals more quickly.
Many of our clients are settling into their new normal and finding the right combinations of choices that work, and we couldn’t be happier for them.
We’d be happy to help you make the financial decisions that make the most sense for you, as well as prepare you tax-wise so every move you make is financially sound.
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