Today’s post is brought to you by my friend Liz over at Minding My Thirties. Liz is a 30-something US expat living in Germany. She moved there after paying off over 70k worth of debt. You can catch her on Twitter at @MindingMy30s.— Will
For those who don’t know my backstory, I am originally from the States. Chicago to be exact, which is where I met my partner, Timo. He was there on a visa, working for Northwestern University when we met. When his visa neared expiration we decided to move to Germany, his native country. Exciting as the opportunity was, I couldn’t help but worry about the differences in cost of living between the US and Germany.
It’s a fairly straight forward process to take the average American income and expense data, as Will so beautifully put together, abstract it and understand where you fall in line given your current income, expenses and the economics you are familiar with. It’s another thing to try and compare your American income and expenses with the average of a foreign country, in another currency with an entirely different tax system. These unknowns made it difficult to project what our expenses would look like before arriving in Germany.
But now we are approaching our 7th month in Germany and have a solid understanding of how much things costs. And to my surprise, we are finding Germany to be a much more livable place across the board, not just financially.
Cost Comparison Criteria Between US and Germany
Full transparency: one-to-one financial comparisons are difficult to capture. Especially when comparing different cities like Chicago and Osnabrück (where we currently live). Other noteworthy changes that affected our lifestyle and, therefore, expenses are COVID-19 and me not being able to legally work at the moment. But while our finances may look different between the US and Germany, it is worth mentioning that our plan is to maintain, or stay close to, our current level of spending – even after the restraints of COVID-19 subside and I begin working. But more on all this in a bit.
For ease of comparison, I am reviewing our personal cost of living, along with gross income, between the US and Germany. This cost of living exercise is for two people combined – Timo and myself. I do not include our net worth or assets as we do not consider this income. However, I do track the money we invest or save (both pre and post tax) to show you how our money is accounted for.
I use income and expense data from Q4 of 2019 for the US and compare it to data from Q2 of 2020 in Germany. Data from Q1 of 2020 was not at all representative of our typical costs as that was our moving and transition period where we faced unusual one-off expenses and fluctuating income.
I also convert all euros to dollars for consistency. Of course, the caveat with doing this is that the exchange rate will differ between the time of writing and any point in the future when you may be reading this.
Cost of Living in the US
Food Expenses in the US
We spent close to a $1,000 a month on food between groceries and dining out. In our opinion, this is much higher than where we would like to be. But it’s also a reflection of the constant pressure we felt to consume while living in the US. When friends get together, it’s typically over a meal at a boutique, and often expensive, restaurant. It doesn’t help that food, in general, tends to be much more expensive in the US than Europe.
Discretionary Expenses in the US
Another large expense was our discretionary spending. Some of this comes from external pressures of American culture – the “keeping up with the Joneses” effect. This isn’t to shift responsibility of our expenses. Make no mistake, we are solely responsible for our spending. However, this category has significantly decreased for me personally over the last two years. And it’s an area I continue to work on. But I am finding it easier to control since moving abroad, where I don’t feel as much pressure to consume.
Savings Rate in the US
Despite these two expensive categories, we averaged a savings rate around 52%. Not bad, considering the average personal savings rate in the US for Q4 of 2019 was 7.7%. For simplicity we use our disposable (net) income to calculate our savings rate. I also include pre and post tax contributions as well as employer contributions.
Cost of Living in Germany
Tax Rate in Germany Compared to the US
Our income dropped once we arrived in Germany due to me not working. However, despite the German social system where taxes can hit upwards of 45%, we pay about the same 22% marginal tax rate as we did in the US. Timo had a one-off consulting job in April, which is why you see a higher income in that month. It’s also worth noting that I finished paying off my student loans right before leaving the US. This is why you do not see this expense carried over.
Health Care Expenses in Germany
Our health care insurance went up in Germany compared to the US. However, we’ve seen a series of doctors, including primary care physicians, ENTs, and allergists since arriving here. None of which required co-pays or additional costs for tests. I think our health care costs will be much more efficient here when looked at as an annual expense, especially as we get older.
Food Expenses in Germany
Our monthly grocery expenses dropped slightly. We are also currently ordering our groceries online with a premium grocer due to COVID-19. When we feel comfortable going back to the grocery store, we will switch to a more cost-effective supplier, possibly reducing our bill by $100-150. However, our dining out expenses may go up slightly once we feel comfortable eating in restaurants again. So in the end, it may be a wash. But, in general, meals out tend to be much less expensive here.
Savings Rate in Germany
Even with a sole earner we are still saving around 42% of our net income. Although, I have a feeling this may drop a little over the next coming months as we start to venture back out into the world. Considering Germany averaged a personal savings rate of 12.4% in Q1 of 2020, we are doing okay. And I’d be happy with anything north of 25% while I’m not currently working.
The Unquantifiable Differences Between The US and Germany
As helpful or insightful as it may be to see the differences in cost of living between the US and Germany – it’s far from the whole story. Yes, money is important. And it’s essential to harness it in a way that allows for a comfortable living and cushy retirement. But there are other factors in play that cannot be measured in a vacuum. Things like work-life balance, quality relationships, social systems, and political landscapes – to name a few.
Despite a global pandemic, there’s an ineffable aura of calm. Even as stores and restaurants begin to re-open and life is returning to ‘normal’ – there’s no sense of urgency. No need to always be doing something or consuming something. There’s room to breathe here. We spend more time outdoors. Instead of binge drinking or splurging on fancy dinner with friends, we take bike rides or cook meals together. Sundays have become a day of rest and relaxation due to many stores being closed. The working day for most people is a hard stop at 5pm. It feels balanced here. I can’t deny the possibility that some of this may fade once I start working again. But, hey, a girl can dream!
Healthcare and Future Needs
The healthcare system is not perfect, but it’s a significant step in the right direction. Should something catastrophic happen, neither one of us will have to go into debt to cover the bills. Even small medical procedures like bloodwork or ultrasounds are covered. Not to mention, obtaining health insurance while unemployed or self-employed is affordable and reasonable. In addition to this, Germany’s social system puts any future worries at ease should Timo lose his job or suddenly be unable to work. I take comfort in the fact that our well-being is not solely predicated on whether or not we have a job.
Final Thoughts on the Cost of Living Between the US and Germany
On an absolute measure, the cost of living is more affordable in Germany compared to the US. Food is cheaper. Reoccurring monthly expenses like phone bills, gym memberships and transportation fees (such as monthly bus or train passes) are cheaper here in Germany. Even looking at comparable rents in a city like Berlin (where we lived for two months prior to Osnabrück), it’s much more affordable than Chicago. Not to mention the buying power of the euro goes further than the dollar. This makes already cheaper goods and services like food or gym memberships all the more affordable.
While our costs might increase a bit as our personal tensions ease around COVID-19, I am confident that we can stay close to our current expenditure. This also makes me excited to start working again. Knowing that we can effectively save all of my salary is motivation for our financial journey. This also further confirms my belief that Germany is a much more affordable country.
Don’t get me wrong – Germany is by no means perfect, but living here feels much more conducive to our spending priorities and values. And while there’s plenty I miss about the US, I am happy to stay put for the time being. Not only for the financial benefits, but also for the benefits you can’t put a price on.