How do you feel when you read articles about Software Engineers getting $400 000 total compensation a year? The first idea may be whether you can get the same somehow. The second idea may be about comparing your compensation to that number.
But how do you compare money across cities, countries and markets?
Is $4000 net a month in Ukraine better than $8000 net a month in New York?
There is a framing which can be very useful to compare the compensation and make decisions about moving abroad or to the different market.
- Figure out your current burn rate (how much money you need to spend a month to sustain your lifestyle).
- Find someone who have the same lifestyle as you do in the target market and ask about their burn rate.
- Calculate how many “additional months” does your compensation buys you right now.
- Calculate how many “additional months” will a new compensation buy you.
- Compare both the absolute numbers ($2000 vs $4000) and “additional months” numbers (2 months vs 0.5 months).
Burn rate is the amount of money you need to spend every month to sustain your current lifestyle. If you do not track your budget, it may be hard to calculate it precisely, but you can go with the approximate numbers. It’s still will show you the big picture.
Figuring out all the details of the different market economy may be very tedious. How do you account for education costs, healthcare, accomodation, taxes and all of other hidden costs you may have?
A very good approximation is to use a lifestyle comparison. Find someone with a similar context (e.g. a single party-goer and a family person with no expensive hobbies are very different in contexts) and ask them about their burn rate.
You current compensation should buy you some months of your life when you can completely earn nothing and feel safe about sustaining your lifestyle.
If your burn rate is $1000, and you earn $2000 net, then your salary buys you 1 additional month ($1000 which you use for current month payments and $1000 which you can use for another month).
Comparing both absolute and relative numbers
By comparing the number of months your compensation you buy you can see an immediate effect of your compensation change. By comparing the absolute numbers you can see the strategic investment potential of you compensation (how much money you can reinvest).