Residual-income comparison of offers
A residual-income comparison evaluates job offers or city moves by what's left over each month after taxes, rent, and fixed costs — not by gross salary. A large gross-salary gap between two offers can shrink to almost nothing once a higher tax bracket and pricier rent absorb the difference.
Why it matters
Comparing offers by gross salary hides the two factors that decide what actually lands in a bank account: how much of a raise survives income tax and Sozialversicherung (social insurance) contributions, and how much a more expensive city's rent eats into the gain. Residual-income comparison combines cost-of-living differences, the consumption floor (the fixed costs a household cannot avoid), and the gross-vs-net gap into one number.
For anyone weighing a relocation within Germany, a remote-vs-local offer, or a raise that comes with a move to a pricier city, that single number — what's left after rent and fixed costs — is a more honest basis for deciding than the headline salary.
The method
- Convert gross to net. A salary increase is taxed at the marginal rate for that income band, not the average rate, so a larger gross gap between two offers produces a smaller net gap than it looks.
- Subtract real fixed costs. Use market-rate rent (Kaltmiete, cold rent excluding utilities) for the actual city and unit size, plus recurring costs like transport and insurance — not idealized figures.
- Compute the residual. What remains after step 2 is the amount actually available to spend or save each month.
- Compare residuals, not gross figures. The offer with the higher residual leaves more money available each month, independent of which gross salary is larger.
- Weigh what the residual doesn't capture. Career market depth, language of work, and professional network change the value of an offer without appearing in the monthly number.
Worked example
Two hypothetical offers show why gross salary alone misleads. Offer A is in a higher-cost city with a higher gross salary; Offer B is in a lower-cost city with a lower one. Figures are illustrative.
| Offer A (higher-cost city) | Offer B (lower-cost city) | |
|---|---|---|
| Gross salary/year | €65,000 | €54,000 |
| Net income/month (illustrative) | €3,400 | €2,950 |
| Rent (Kaltmiete) | €1,200 | €750 |
| Fixed costs (transport, insurance) | €150 | €150 |
| Residual/month | €2,050 | €2,050 |
Offer A pays €11,000 more per year on paper. After the marginal tax rate takes a larger share of the raise and the higher-cost city's rent absorbs the rest, both offers leave the same €2,050 per month available. Gross alone would rank Offer A as the clear winner; the residual shows the two offers are, financially, a tie — leaving the decision to the non-financial factors in step 5.
Check yourself
Offer C has a net income of €3,000/month. Rent (Kaltmiete) is €900/month and other fixed costs (transport, insurance) total €120/month. What is the residual income per month, in euros?
Offer D pays €4,000/month net with rent of €1,500/month and fixed costs of €120/month. Offer E pays €3,200/month net with rent of €700/month and fixed costs of €120/month. How many euros higher is Offer D's residual than Offer E's, per month? (Use a negative number if Offer E's residual is higher.)
Two job offers differ by €10,000/year in gross salary. Which number is the honest basis for deciding which offer leaves more money available each month?
Which of the following are steps in a residual-income comparison of two job offers? Select all that apply.