The Cost-of-Living in the Cities I've Lived In

As most of you know, I've suggested quite often that one way you can impact your net worth positively is to live in a lower cost-of-living city. So I thought it would be fun to look at the cities I've lived and worked in (I'm putting them in alphabetical, not chronological, order) including a couple internships I had that were on the "higher end" of internships.

So I went to Sperling's Best Places and used their cost of living calculator. A score of 100 is the national average -- that this particular city is equal in cost to an average US city. A score below 100 means that the city has a lower cost-of-living than average (for example, a score of 80 means the city's cost-of-living is 20% lower than the average US city) and a score above 100 means that the city has a higher cost-of-living than average (for example, a score of 120 means the city's cost-of-living is 20% higher than the average US city). With that said, here's a list of the cities I've lived in and their cost-of-living scores:

• Cincinnati, OH -- 80
• Grand Rapids, MI -- 83
• Indianapolis, IN -- 75
• Nashville, TN -- 89
• Pittsburgh, PA -- 84
• Washington, DC -- 166

A few thoughts on these:

1. See, I practice what I preach. ;-)

2. The most expensive I've ever lived in was DC -- but that was just for a summer (thank goodness.) I loved the city (lots to do) but it was very, very expensive. I paid more for a small apartment (with a roommate) back then (20 years ago) than I would now on a $300k mortgage! Yikes!

3. One of the arguments people have for living in more expensive cities is that they can make more money. I have two responses to this: A. Living in smaller cities hasn't stopped me from making a good income and B. Yes, on average, you'll make more money in larger, more expensive cities. But living there will cost you way more than you'll make in a higher salary.

4. Living in these cities has helped me save a BUNDLE throughout the years and, as such, helped me accumulate a decent net worth.

5. I'm sure many of you will hate this advice. ;-)

6. Obviously, you're free to live where you like (and doing so is one of the freedoms of choice we have in our finances.) I'm just pointing out the impact of these decisions and submit these thoughts for your consideration.

If you like, give your city a run-through of Sperling's cost-of-living calculator and see what it comes back with. Then come back and share your results in the comments below.

Comments

Sorry, FMF. But this is one of those bits of advice that is always overstated. First, what matters is what costs more in the city you move to and what you spend your money on. For example, I had a choice between Chicago and Detroit when I left school. I would have made good money in both places. But the offer differential at the time was in the neighborhood of 50K. Salary differential now would be in the neighborhood of 100K. Yes, you are reading that right. Why? Because the market for my skills is so much more sophisticated and larger in Chicago than in Detroit. If you really think I give all that back and then some because of cost of living differences, you are nuts. In any high cost environment, it's always possible to live way below the average cost. You just have to choose to do it.

[FMF]

Anon --

There are always exceptions to every rule. But by and large, you lose more (in costs) than you gain (in salary) in more expensive cities. The facts are documented.

If you dispute them, I suggust you use facts that pertain to people in general and not an example here and there to show otherwise.

FMF, the point is comparing averages is pointless. Those aren't facts that are relevant to the individual. The facts that are relevant are the actual job salaries and actual costs you would face in both cities. I'm sure you use your actual spending habits to budget, not the average of your community. Of all people you should know this. You live in a state where all the smartest young graduates move out of it for precisely this reason.

[Vincent Scordo]

I live a few minutes outside of NYC and the cost of living is, as you suggested, high.

Personally, I find the following value in living near a large city, especially in the US (I mean LA, NY, Chicago, I think it's actually less important in Europe, Asia, Canada, etc.):

- Near a mix of other cultures and people (especially important for kids)
- Varied job opportunities (not just a single industry or profession)
- Cultural opportunities (music, arts, etc.)
- This is very subjective: the energy that a city gives off
- Access to wonderful food shops
- Access to top quality restaurants
- varied housing stock (house, apartments, etc.)
- Near colleges and universities

Vince Scordo

[FMF]

Anon --

Of course they're relevant. Sure, every individual has to make PERSONAL finance choices based on their specific circumstances, but the averages ARE a good overview and direction for considering starting points (and general actions to take.)

[Kevin M]

My town - St. Charles, MO - gets an 86. That's actually higher than I thought it would be, but still below average, which I already knew.

[SUSAN]

140! The cost of living in my Long Island community is 140 (and way over in every category they track). However, more people in the community make between $100k and $500k a year than the national average, more kids graduate from both high school and 4 year college, we spend more per student, and crime is the lowest it can be on that scale. Plus every single member of our extended families are here (and getting older), so here we will stay (God willing).

Very interesting information though.

Fine, FMF, they are relevant but not decisive. Just as you tout the idea of moving to a lower cost city constantly, I can't help but emphasize the make more money side of the equation. It all comes back to spend less than you earn, i.e., that the real relevant factor is the positive delta you can create between those numbers. So you have to take both sides of the equation into account. And it's just my experience that cost of living differentials tend to be way overstated. I've lived in many of the major cities out east and in the midwest. While those stats give you an accurate view of the relative cost differences (i.e., which costs more than the other), from my experience they are hardly precise numbers. So I think it is a BIG mistake if you are looking at a substantial nominal wage difference between two cities to look at cost of living average stats and assume that your real wage difference will be nominal or actually in the opposite direction.

[Matt]

Good advice (#5) except for one thing - owning a pet. There was an interesting story on npr about those African pirates. The way to dissuade pirates from attacking is to have a security force on board your ship but the interesting thing is that the security force has no deadly weapons. They just patrol the perimeter of the ship and have some high tech gadgets that aren't lethal. This is b/c what pirate would bother chancing robbing a ship with guards that may or may not have weapons when they can just wait for the next one and avoid the hassle.

What robber would take a chance on with robbing your house if they hear a dog barking inside? Not one. I have heard many stories of people's houses getting broken into and none of them had dogs. Dogs are the ultimate deterrent b/c you never know how vicious they are and their barking wakes everyone in the neighborhood up. An early warning system.

Plus there is companionship but I'm unlikely to persuade your readers on the joys of dog companionship if their decision is based on cost of ownership. If you're particularly cold then your ROI is probably higher with a dog than with children.

[Meg]

I totally agree that cost of living is one of the primary factors that can affect your net worth and/or discretionary income. It's second only to career choices and family choices (whether to marry, have kids).

And I love it when people try to dispute this by saying they make more in a big city or that they can't imagine not being surrounded by so much "culture" and "opportunity" as NY or LA or DC has to offer.

These folks argue as if the only two options are living in a super expensive urban center or in a super cheap remote town of 100,000 people or less. If those are the only two options, then yes, you can make a lot more in a city and have a lot more culture and options as well.

But there are other options. I live in Dallas, for instance, which arguably has all of the culture and social scene and career opportunities as any city in America. It's also FAR cheaper to live in than most every major metro.

I have friends with similar skills and careers and educations who moved to NY, Chicago, and LA. We all live similar lifestyles and make similar incomes. But because of where I live, I also own real estate and max out my retirement funds.

[FMF]

Matt --

If security is the main concern, then I've got to believe there are "electronic dog barking" devices you can buy that are MUCH cheaper than buying a pet.

[J]

This is one of those issues where everyone is going to have to agree to disagree. It comes down to how you prioritize things in your life and the value you place on them. While you might think building your net worth is important others might think living in a vibrant, diverse environment is more important. You might argue they can get the vibrancy and diversity at lower cost somewhere else (like Meg promoting Dallas) but you aren't going to convince them that. I personally think there are a lot of intangible benefits to bigger cities that are hard to quantify. But that is based on how I place value on the things I want to do/experience. If financial wealth accumulation was the only issue then sure you are right, but that isn't the be all end all issue for many. Everyone need to quit preaching as if there is only one answer on this issue, just like the religion issue!

[Kevin M]

FMF - Did you ever decide whether or not to get a dog when you move? Weren't you talking about that a while back?

[Slinky]

What I found very interesting is that my city in general is %16 or so percent cheaper than the average. My particular zip code is 4.5% more expensive than average. I'm not surprised by that though. A lot of that will be the difference in housing. I live in the zip code that includes the lake front mansions. Most of the houses around me are older, beautiful pieces of art rather than cookie cutter houses.

[J]

BTW you bash anon for using specific cases rather than the average, yet you use your ability to have a high income in lower cost of living city as proof that this idea is a fact. Have you really compared the average income vs. average cost of living to determine whether the average person really does better off with the lower COL city? Sure you can argue that a person could be better off, but you are doing the same as anon. I personally agree with anon that in many cases there just aren't the opportunity to make as high of an income, whether that be b/c the same jobs don't exist or that the jobs pay substantially higher.

[Craig]

To each his own. I moved out of Boston (and MA) because it was too expensive and it wasn't where my family/friends were.

I make more now than I did in the city and it costs me 1/3 less to live, have lots of space, and save a bunch more. It's what I wanted and it made me happy. I have lots of friends that are still in the city and love it. That's their choice. Just wasn't the lifestyle I was interested in.

That, and I'm actually doing more cultural activities and enjoying more of life's pleasures now that I'm out of the city and can afford it (and have the time!). Maybe boston is a bad example tho...

[FMF]

Kevin --

Yes, we were. But since the move is on hold, so is the dog.

[Jim]

FMF's point is valid and we should all be aware of cost of living for where we live and consider our options. I'm sure FMF doesn't expect us all to move to Indianapolis tomorrow and this kind of thing should be evaluated on an individual basis.

The cost of living number is a good rule of thumb. Another good rule of thumb is cost of housing. In fact I think the COLA is mostly proportional to cost of housing since thats the biggest expense that varies the most with location. So you could just look at cost of housing and get the same effect IMHO.

Wages are the other very important part and shouldn't be overlooked. Looking at the cost of living numbers you might assume that Pittsburgh is a good choice economically. But if you look at median wages in Pittsburgh they are only 75% of the national median. So while costs are 15% cheaper in Pittsburgh your wages are 25% less. So you'd be worse off there than average.

For averages its best to look at wages / cost of living.

Individually we should each look at our own situation. What our job is, where you can get jobs and how much they pay and then compare that to cost of living in various locations. For example if you're a middle school teacher you would be much better off in Denver than Las Vegas even though Vegas is marginally cheaper cost of living and this is because teachers get paid $7k more annually in Denver. On the other hand electricians are better off in Vegas since they make $10k more there.

Jim

[Bobby]

Anon & J,

Yes FMF has done an overall comparison on this topic, in fact I think it was very recent. FMF doesn't cite one thing over evrything else, except spend less than you earn, your suppoised to use the information as part of a whole to make important financial decisions. Just as if you wouldn't consider just how much an employer would "Pay" you as opposed to "Total Compensation" when deciding to change occupations. Welcome to the forum, I'm assuming your both new.

[FMF]

J --

1. Wrong! Click the first link in the post above and see how I use FACTS to prove my point of what happens on average.

2. THEN, I use my personal experience to show that if you can do both (make more and live in a lower cost-of-living city), you're even better off (just like you're better off if you can both make more and save money on purchases.)

[Kim]

Something that I've never seen mentioned in this argument is this: If you live in Michigan and earn "a good salary," but lose your job, how quickly can you replace it? If you're making, say, $90K in MI and got laid off next week, would you be able to get another job for that amount within 30 days? I highly doubt it. In NYC, LA, Chicago, SF, etc., if you are truly talented, you would be able to walk across the street and get another job. Yes, even in this market.

Your thoughts?

[Foobarista]

For several reasons, I'm suspicious of these "calculators". As an extreme example, I remember reading that Beijing was supposed to be one of the most expensive cities in the world, according to several international cost-of-living survey. But I managed to live quite well there for about $350/month! But I didn't live in "expat-targeted" apartments, didn't eat in hotels, shopped in local stores, and didn't buy everything in premium department stores, unlike many expats.

After I moved back home, I moved back to my supposedly hugely expensive city - Silicon Valley, within two miles of Google HQ - and have lived here on about $40K/year ever since. Our HH income is about $250K, and neither of our careers are particularly "transportable".

Part of the issue is the "other things being equal" assumption behind these calculators. They start with a "reference lifestyle" with an "executive quality" house of X square feet, etc - and much of the cost is the expenses of such a house in various places. This alone will kill any comparisons of cities versus sprawling exurbs.

But if you live in Manhattan or Palo Alto, you live in a far smaller house or apartment than the McMansion typically used in the reference lifestyle comparisons. Utility bills will be lower (even if base costs are higher), and you probably won't spend as much time at home in these places as you do in an exurban environment.

We recently did a line-by-line comparison of our expenses with a friend in Houston. They have a far bigger house and yard than we do, and it costs about 1/2 the market price of ours, so if that's a priority, I suppose Houston wins. But they averaged $750/month in utility bills, where ours are about $70/month. Our property taxes were about the same, and their insurance and maintenance costs were quite a bit higher than ours. They spent far more money on cars and commuting than we do. They paid much lower state taxes than we do, but have lower incomes in similar professions and stations in life (and similar attitudes about saving, etc).

In our particular case, we manage to save more than them, and we live in an area we like better. Anecdotes aren't data, but just some info...

[FMF]

Kim --

If you're truly talented, you should be able to find a position almost anywhere. Though I'm guessing you're on to something -- a move is much more likely if you're in a smaller city.

For me, it's not really an issue since there are about a ba-zillion places I'd be fine living in. (In other words, I'd certainly be willing to move.)

[Sarah]

Unemployment in Michigan is creeping up near ten percent. I'm not sure how much financial good it would do you to be living in Grand Rapids with its lower COL if you don't have a job. Ohio isn't doing much better. I know for a fact that I made about $70K more working in my city than I would have made in Michigan this year. The salary discrepancy for the same job is that great. (Obviously, that is not true for every job, or even most jobs, but you come to my city because you think you have a chance at being the best, and you want to give it a shot.)

"Dallas, for instance, which arguably has all of the culture and social scene and career opportunities as any city in America"

Sorry, it doesn't.

[FMF]

Sarah --

Personally, you can have all the "culture" you'd like. I prefer to maximize "lifestyle".

And I'm not advocating everyone move to Michigan (that's just where I live now), though your comment seems to imply that. For the record (again) I am bringing up the fact that smaller cities cost less to live in on average (and the higher salaries you earn in larger cities don't compensate for this.)

[Miss M]

Kim has a point, a large metro area comes with a lot of opportunity as well. In a smaller area with fewer jobs it can be quite difficult to replace a lost income or switch to another company for better pay. The high gas costs this year hit smaller communities hard cause many people drive long commutes to jobs and there is no mass transit.

On my underwater homeowner blog there is a story of a woman from MI who is underwater on two homes, there wasn't a lot of opportunity where they were living so they moved to a larger city for better jobs. They haven't been able to sell house 1 since there aren't a lot of jobs in the community and are being advised to give up and walk away.

Los Angeles is less expensive than DC it appears, it came in at 155. The national average salary for my job is just below $60k, I'm making over $100k in LA.

[cynner]

I'm just curious as to why FMF comes back to this subject so often.

Aside from cost of living, lifestyle, career opportunities, family/support network, etc. are such personal choices in where to live that discussing "facts" is moot.

Live below your means and enjoy life. In the end you leave it behind, you don't get to take it with you.

[FMF]

Cynner --

A couple reasons I come back to basic ideas (spending less than you earn, how to save money, how to make more, how to grow your career, etc.) that work over and over again:

1. Like anything, we all (including me) need reminding of the basics on a regular basis.

2. I know that not everyone reads (or remembers) even close to everything I write. So while I post five pieces on one topic, many people see only three and remember only one.

[J]

My point isn't that your analysis is necessarily "wrong", but irrelevant to most people's situation. There are too many variables to make some cut and dry statement that you should move to a lower COL city. I think the backlash on this topic is the "preachy" nature of the stance FMF seems to take on it. There are too many variables involved and you might be misleading people. I think a more cautious discussion of the issue is called for than you have laid out in this and other posts.

[FMF]

J --

You're calling me preachy like that's something new. I'm always preachy. What's different about that? Are you new to the blog?

Anyway, if you are, here's the lowdown:

I recommend what I do personally and what's worked for me. If you (or anyone) wants to ignore it completely, that's really no skin off my teeth. These principles have worked to help me build a large net worth, so I know they work. And certainly there are other paths to wealth, but I haven't lived those, so I don't write about/recommend them as if I have.

[Craig]

I understand what you are saying but think there are so many more reasons to live in or near a big city than just potentially a higher salary. I agree with Vincent. There is so much culture, food, shops, entertainment, that doesn't exist to the degree in smaller cities. Of course it all depends on your preference.

[MrAtoZ]

My brother lives in Grand Rapids, while I live in the DC area. I'd much rather stay here even though the COL is supposely 66% above national "averages." Money can buy things, true, but the lifestyle you can get here versus, well, in Indiapolis, is, as Mastercard says, priceless. And frankly I make more than my brother because he's where he is, and I'm where I am. Other personal and professional factors apply, of course, but location is a key element.
As an earlier poster noted, many of the places/states that the calculator lists as cheap or affordable are that way because their economies are truly stinky, and Michigan, Ohio and Indiana are at or near the top of the list of states in a hard recession, with high foreclosures and huge job losses. People are leaving them, regardless of how "affordable" their housing is supposed to be.
You may also want to review this article (http://online.wsj.com/article/SB122764977315457619.html) in the WSJ that provides an overview of wheere housing prices may go in the future. At least one analyst isn't a big believer in the future staying power of most of the locations mentioned above.

[FMF]

Mr AtoZ --

I agree that personal preferences do play a role in the decision (as they do in many financial decisions -- which TV you buy, which college your kids go to, etc.)

As someone who's lived in both DC and GR, I'd probably pick GR to live in over DC even if the cost was the same. DC is a nice place to visit, but...well, you know the rest...

But the truth is for me that I have the best of all worlds -- I live in a place I prefer (personal choice) that has a low cost of living (the topic of this post) and I have a high income (the topic of many other posts on how to make the most of your career) even by DC standards.

[mysticaltyger]

One thing nobody has mentioned about living in a larger city....the very cultural amenities that they offer often add to the cost of living.

In other words, in larger cities people tend to entertain themselves by spending a lot of money on concert tickets, theater, etc. In larger metro areas people tend to have expensive hobbies as well. So if your life doesn't revolve around these things (e.g. Cirque du Soleil comes here every winter, and the tickets are $85 on up. Cirque doesn't even come to most less expensive cities at all) So often, you'll simply be left out of some social circles (e.g. you don't go to Cirque du Soleil because of the high ticket prices).

Another example of my area in perticular (SF Bay Area)... People outside of San Francisco proper, will often drive an hour just to go out to a bar or restaurant. Even with $2 gas, that ends up being expensive over time. People in this area often have friends scattered throughout, so that adds to the already high cost of living because you often end up driving 1/2 hour or 1 hour to go to various activities.

[Jim]

FMF: "DC is a nice place to visit, but...well, you know the rest..."

What if DC was cheaper than Michigan? Would you move there? ;)

[Suze]

Why is this topic always so controversial? You can live where you want, for whatever reasons are important to you, but it's an inescapable fact that some places are cheaper than others.

And I'm going to have to tell my friend in SF who lost his job six months ago and has been having a terrible time finding a new one that all he needs to do is "walk across the street."

[Emily]

So how much did you pay in rent 20 years ago in DC with how many roommates? I have friends who pay 1000 to share a 2 bedroom today (very high I know), but I can't imagine that rent prices have stayed the same for 20 years. I live/work in the DC suburbs (25 mins outside), live in a 1350 square foot townhome that I bought for $180,000. My husband and I both make in the mid 40s, save 15% of our income for retirement, have a $480 car payment, live comfortably and save 1300 a month on top of our bills and retirement. After our car is paid off in March we will have close to $2000 month extra to invest and save. Our home is big enough for 2 kids (which we want to have), and we enjoy living the DC area and don't plan to move. We are both 2.5 years out of college. Oh and I grew up in DC :-)

[FMF]

Emily --

My memory isn't that good. I'm lucky to remember what happened yesterday (and I didn't track my finances in Quicken back then!) ;-)

I LOVED living in DC for a short time and like the city a lot (to visit). We're planning a trip there in a couple years. So don't misunderstand -- I'm not a "DC hater." Still, don't think I'd want to live there.

[AdamCO]

the 'culture' argument is a favorite shield for people living in high-cost areas (New York, New York, or San Francisco, California for example).

having spent plenty of time in these cities and having a multitude of friends in such places, I can say that when people from these places get together the conversations quickly turn to an orgy of affirmation about the city where they live. "'only in new york' could I have .... " blah blah blah. usually followed up with some snide remarks about some other part of the country. so while it isn't hard to find reasons to justify living in louisville or nashville, living in some of these other places requires constant reassurance that you're doing the right thing and have 'figure it out' in a way that people in other parts of the country haven't.

it's all nonsense, obviously. for every one person actually adding to the culture in NY or LA there are one thousand people talking about and taking credit for it.

the dali exhibit i saw in MOMA in new york is literally the same dali exhibit that comes to the toledo art museum. but it doesn't cost $25 to get in and there aren't wall-to-wall crowds.

there are exceptions. if you're into god-awful music where you need a city of eight million to find enough fans to support a band, then ny, ny is for you.

[AdamCO]

the 'culture' argument is a favorite shield for people living in high-cost areas (New York, New York, or San Francisco, California for example).

having spent plenty of time in these cities and having a multitude of friends in such places, I can say that when people from these places get together the conversations quickly turn to an orgy of affirmation about the city where they live. "'only in new york' could I have .... " blah blah blah. usually followed up with some snide remarks about some other part of the country. so while it isn't hard to find reasons to justify living in louisville or nashville, living in some of these other places requires constant reassurance that you're doing the right thing and have 'figure it out' in a way that people in other parts of the country haven't.

it's all nonsense, obviously. for every one person actually adding to the culture in NY or LA there are one thousand people talking about and taking credit for it.

the dali exhibit i saw in MOMA in new york is literally the same dali exhibit that comes to the toledo art museum. but it doesn't cost $25 to get in and there aren't wall-to-wall crowds.

there are exceptions. if you're into god-awful music where you need a city of eight million to find enough fans to support a band, then ny, ny is for you.

[Andy]

I moved from a small town in MN to Indianapolis. The cost of living is less and I now live in (what I thought was) a large city. Lucky for me I haven't been spoiled by all this "culture" you guys talk about. I like that I can get more TV free over the antennas here than I'll ever have time to watch. I like that there are bike trails all over the city, good cell phone reception, lot of different food choices. There seems to be plenty of jobs in my (technology) field here.

[mysticaltyger]

>

Very good point AdamCO!!! Living in the SF Bay Area, I hear this kind of talk all the time.