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July 21, 2008


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I am in full agreement with the fact that where you live can make a huge difference in how you live, save and accumulate wealth.

My husband felt we needed to move from Ohio to New Jersey with is company for his next promotion. The pay increase, bonus increase, was eye popping to us. That kind of money in Ohio would be a windfall.

But, then we started looking at the prices of homes (equivalent to what we live in now ), and shopping out East, and found ..... we would be downgrading our lifestyle. We would be in a smaller, older ( needed updating ) type of house. We would have less money to save for the kids college and our nest egg, etc, etc. AND...we would need to take a large mortgage out for that smaller house.

All because the increase, although large, still wouldn't cover the cost of living increases. And, they would give a COL bonus, but that only lasted 2 years...then what?

Needless to say, we are putting off the move to NJ. In fact, they gave him the promotion ( not as much money as the NJ promotion..mind you ) to stay in Ohio and with the company for another few years. BUT, even though a smaller increase, it is WORTH more to our savings and our lifestyle.

And, although we will eventually need to move out East, the longer we can save more and put away for our retirement, the safer I will feel about going out there.

Minneapolis is on that list?????????

I live and work just outside of Washington DC. I'd love to move to a cheaper area, but I work in international economic development (a niche field if ever there was one) and am in my mid to late 20s. It's simply not possible at this early stage in my career to continue to do what I'm doing outside of this area.

Also, moving is a big decision that involves more than simply increasing your personal wealth. That may be a significant benefit, but it should be one of multiple factors when contemplating a move.

While from a purely practical standpoint I think you're making a valid argument . . . for me where I live is one of those areas that I would never be willing to skimp on in order to save money. Sure, I could probably live in some rural part of America and save a lot of money (and I have but it didn't last long) but I would consider the value of living so far below my experiences of living in a city that it wouldn't be worth it to me. I instead chose to focus on earning potential and now feel that my family and I could live comfortably in any city in the US.

It goes into the big equation of how much I need to spend in order to make ends meet and save properly for my future. If I need to save in other places in order to live in an expensive city then so be it.

One advantage of the big city financially (and part of the reason for the expense) is that you can get by without a car. If you look at (Housing + Transportation related expenses) comparing rural towns to urban areas. In some locations its a wash. If you are going to live in the suburbs though, you are definitely better off with Omaha over the DC area.

For the fresh out of school living car free in Chicago or Philadelphia might make more financial sense than commuting half an hour each way in Plano. (I didn't do this, I work in the DC suburbs and have a car).

FMF, so when are you moving to Plano Texas? ;-)

Jim --

I already live in Nowhere, Michigan. ;-)

I think every place you mentioned, from NYC all the way down to Plano, TX and Aurora, CO are big cities.

rwh --

Good point. Many can save even more by living in much smaller cities (though I guess there could be cost disadvantages too like lack of competition among businesses.)

DOH! I moved from Plano, TX to DC! haha

I'm probably making about the same net paycheck after adjusted expenses, but even if I wasn't, I wouldn't go back.

There are some things that can't be accounted for. San Diego might cost more than El Paso, but I bet there are a good number of people who would consider it worthwhile. Not that I am justifying living in an expensive area, DC sucks too. I'm just sayin. ;)

Aurora, O.K., Plano, no thanks.

Aurora O.K., Plano, no thanks.

Your age, profession, and what is important in your lifestyle should be deciding factors about where you live. Remember we live our lives first. If you sacrifice everything in the name of saving for retirement won't you have missed out on all those years of actual "living"? Does the end always justify the means?

This may sound somewhat philosophical but decisions about how you live your life should incorporate a vast amount of criteria, not just financial.

In my case, I live in the San Francisco Bay area and work in the Internet (social networking in particular). There are very few places outside the top 10 (or fewer) cities where I could work in this field. Beyond that I appreciate the actual lifestyle here (liberal, enviroment focused, etc.). So, despite the decreased value of my income as compared to other areas of the country I am willing to weigh the cost benefits and choose based on many critera not just financial reasons.

This seems a little counter intuitive to me. I don't know the finances of the expensive areas but if they are such that you can afford to buy a house it seems like you would be getting paid enough to support the cost of living of a more expensive city. To that end over the course of the years you could get mortgage equity buy down and asset appreciation in a more expensive market. When you retire if you then sell that house and move to a cheaper area it seems like you would have accumulated more wealth than if you had just stayed in your cheaper city your whole life.

Is my math wrong?

Correct me if I'm wrong, but wouldn't the 20-30 years you'd been PAYING interest rather than GAINING interest from a steadily fed retirement fund be enough in itself to negate that entire theory?

Either way, since you don't know, trust me: it's a huge difference. A house that I lived in in Dallas for $85,000 is easily $300,000 here. A house that I lived in that was $190,000 is easily about $700,000. And I'm talking 1 city over from Plano (in a more expensive area); it's not country. That's a rather large difference, especially when dealing with interest lost/earned.

Not that I know either way; just food for thought.

I totally agree as well with your statements. Those of you who have already spent a large amount of time in one of these places - don't despair you can get the best of both worlds. Sell your house and move to a cheaper city, reclaiming some of that high cost of living along the way. The point about sacrificing to live in a smaller town is also important but there isn't necessarily a tradeoff. You can live in Boston or Austin and they are similar in many ways. Austin cost of living is at least half of Boston, if not 1/3, quality of housing is nicer, and they are both liberal college towns. They even sound similar!

The advice to move to improve your standard of living often overlooks the value of having a family and social network in place where you live. For example, I would imagine that many low-income families, especially single parents, benefit a lot financially if they live close to relatives who are able to provide emergency babysitting. Many other forms of informal aid become much harder to secure if you're living far from your connections.

Also, the methodology of that study is opaque. I wouldn't rely too much on it without a clearer description of how they reached their results.

I think you need to take into account both cost and lifestyle before you decide to move somewhere cheaper.

Apex --

Yes, the math is wrong. The cost of living is much more than you earn in a higher salary. Details:

Certainly not true in my case.

I moved from Melbourne, Australia to London.

In Australia, the best job offer I could get was for 50kAUD.

When I moved to London, consistently fighting for top spot in terms of expense, I got more than double that salary because of


The depth of the job market in bigger cities mean that for the same job title you could be earning vastly different wages depending on your personal attributes and how you play your cards.

And before you ask, the cost of living in Melbourne is cheaper, but I estimate by about 20% and not by half. Factoring in things like cheaper holidays that are available from London and Melbourne's absolute dependancy on cards, the margin can get tighter.

I think generalisations like this are pretty useless and people will always decide for themselves very specifically, wether a move is warranted.

For some cities it seems the numbers are so far off they couldn't work but it doesn't seem like anyone has addressed my central question yet.

I expected that the cost of living was more than the increased salary. But what I had said was if you can afford to purchase a house and pay it off using your salary you now have used part of that higher cost of living to purchase an appreciating asset that has more value than the one you would have purchased in a lower cost area. After 30 years and you have paid off your 500K house in the expensive area that is now worth 2 million or whatever the case may be and then you sell that and move back to the lower cost area do you have more or as much total net worth left as if you had stayed in the low cost area.

Again I don't have the answer to that but it seems possible. This requires a little more complicated analysis than just doing a cost of living index comparison and I am not really interested in exploring it in detail. Its just something that I think can get overlooked in the equation.

Apex --

Seems to me you have too many vital assumptions that don't hold water. A couple for example:

1. That you have enough to save for and pay off a more expensive house in the larger market and yet, somehow, can't make a better or even similar move in a smaller market.

If you have enough to buy a $400,000 house in one market, you likely have enough to buy a $200,000 home and have $200,000 left in a smaller market (remember, your NET take home is LESS in the bigger market due to expenses -- so you'll have more available to buy/invest in the smaller market.) In fact, you'd probably be able to buy a like-sized house and even have more left over to invest -- which is likely a better option. So I don't see how your assumption is plausible.

2. You're assuming house values in the bigger markets go up faster than in smaller markets. As we all know, no one is really able to predict housing values. Ask people in LA who bought two years ago what they think of their home's value now.

3. Many would argue that the best option is to minimize the amount you spend on a home and maximize what you invest in stocks and other investment options. This is contrary to placing a huge amount of money in your house.

Piggy, The CNN article was specific to comparison between American cities. Moving from one country to another country is a very different situation. Also, Melbourne is hardly a "small" city so you really moved from one large city in one country to another large city in another country.

Its generally true that smaller cities are more cost effective, but of course there are always exceptions. I'm sure FMF isn't arguing that there arent any possible exceptions to the generalization. Living expenses also vary greatly from one region to another here in the USA. A small city in California may be more expensive than a large city in the US South.


We just moved to Minneapolis (it shouldn't be on the cheap side of that list, ugh!) from central Iowa. Not only is everything FAR more spread out (we had the library, DOT, grocery, health food store, pizza/seafood/chinese/japanese/greek, Salvation Army, Goodwill, the mall - EVERYTHING within 5 miles) but housing is insanely more expensive up here as well. (about 200%)

It's a trade-off, though. My husband is now at the corporation HQ for his business with far more advancement opportunity. Over the next 10 years, that can make quite a difference.

And since we opted for an apartment, we used a good deal of the cost-of-living-adjustment (over 3 years, upwards of 10K) to pay off a car and three cards.

When we do buy a house, though, I'll certainly be looking into smaller towns in the area as well as the suburb my husband works in. ;) And we plan to move back to Iowa when we retire with the extra cash saved from living up here.


Thanks for the clarification points. I don't know the details. If its true that after living expenses and before considering any housing options you actually have less left in the big market than the small then clearly my assumptions are way off as you said. I assumed you would have more left after expenses but after housing is when you were really more poor and thats why I was wondering about the housing appreciation and equity in the end.

I wonder if its truly the case that you always have less after expenses and before housing in a bigger market but if that is true then as you said, you are poorer no matter how you look at it.

Thanks for the further clarification.


Glad to see someone else railing against the "must move to a big city to make big money" concept. I've never seen a case where the extra salary justified the extra expense and extra trouble of "must have" areas of the country.

This peaked my interest as this is a discussion I have with my family constantly. I think the deciding factor is whether you put your mortgage in your "expense" column or your "investment" column. I live in he SF bay area, and it's not cheap. But I own a home. As a result I have a large mortgage, but I also have control over an large asset that appreciates in value with tax advantages.
From my point of view, I see my net worth increasing faster because I earn more and put it in the right place. I have not ran any models on this, but my gut tells me that I'm going to end up better off.
I'd love to hear thoughts and critiques of my theory.

Great blog, by the way! Keep it up.

One more thing to add.
t3ch commented about how it's counter-intuitive to be paying interest instead of earning it. I'd agree, but my loan rate is low and my home's appreciation is higher. I've done really well with houses so far.
FMF replied to Apex about an assumption that home prices appreciate faster in more expensive areas. While I can't argue that point, I can say that I'd rather be in control of a $600k house appreciating at 3-5% than a $120k house appreciating at the same rate.

As you may be able to tell - I have a bias towards having real estate as part of your portfolio.

Thanks in advance for your thoughts.

I had the wonderful opportunity of working for a Bay Area start up while living in Baltimore, MD. We had an operations center in Northern Virgina and I'd commute in (1.5 hours each way) 3 days a week, work from home the other 2. I got paid a Bay Area wage while living in much cheaper Baltimore.

Later in my career I worked for a UK company, getting paid on a English Pound wage (when it was very strong) while living in Thailand- a very low cost of living area.

Now I'm still in Thailand but being paid in US dollars. I can earn more here than in the US at the moment and my total living costs are under $2k per month. Overall, a great way to accumulate wealth even if you invest ultraconservatively (bank interest) and if you lose your job you can live 10+ years without cracking financially.

Check it out... it can be done!


I tend to agree with FMF that a cheap city lets you save more for a given salary. 2 Nuances:
- Real estate: it inflates faster (in the long run) in expensive cities (inflation overall does), giving you a better return on (mortgage) investment. Of course the initial investment is higher, which leaves less cash for stocks (which inflate even faster), but the leverage (mortgage!) on real estate makes up for that, especially in the first years of your career. In all of this I am disregarding the odd phenomenon of falling house prices (which I think is temporary anyway).
- Another reason for young people to be in big cities: career opportunities thru networking and choices. Can be seen as trading earnings for earning potential. (You keep less money due to the cost of living but you might end up with a better job.) Then mid-career you follow FMF's advice by selling your house for a nice profit and moving to the 'outback'.

(The wording of my last sentence was unluckily worded in that FMF has of course never instructed us to sell house & move. But you get the point.)

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