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December 15, 2012


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I have a decent paying job, but nothing like 6 figures or anywhere close to that. I do, though live in a lower cost of living area and that makes life so much easier. I definitely make a lot more than the average salary for my area.

I always wonder about these cost of living comparisons regarding a couple different things.

First of all, it always seems to me that the primary thing people are referring to when they say it's a "low-cost-of-living" area is the cost of housing. Aren't the costs of most consumer goods (with possible general exception of gas) about the same across the nation? I mean, I can't go buy a new car that sells for $20k in Los Angeles for $10k in Kansas, right? The McDonalds dollar menu costs the same everywere (except at airports), right? So unless I'm missing some major things here, we're primarily talking about the cost of housing.

Secondly, let's assume for a moment that costs across the board are lower in the low cost of living areas. Someone making $100k in a high cost of living area spends $90k and saves 10%. Someone in a low cost of living area makes $50k, lives the same lifestyle, and also saves 10%. However, this person only has $5k per year in savings instead of $10k. Their travel budget only goes half as far. Their retirement options are much more limited (after all, the high-cost-of-living person can retire in a low-cost-of-living area and stretch his retirement money twice as far).

Basically, my conclusion is that it's typically better (financially) to live (and earn) in the high-cost-of-living area. Am I wrong? (yes, I understand FMF was suggesting a combo - earn based on high-cost areas, live in low-cost areas)

I work 5 miles from Redford MI. I life 5 miles in the other direction from Redford from my work. The cost of living in the same size house hold is drastically different. The $60k house they are talking about is different than the $185k house I live in. The schools are better and the safety is better where I am at and the whole qualify of life is drastically different.
If I go another 5 to 10 miles the housing is $250K to $400K. Once again drastically different. My pay has not changed but only my location. I have a choice.
I am sure it is the samy any where you go.
Chicago,LA, San Diego.Move 5 miles one way and the houses are better or worse and blah,blah,blah.

So in real estate location,location,location matters in housing cost. It is a matter of what you can afford, what you can live with, and your quality of life.

Jonathan -

Taxes are a HUGE issue impacting cost of living...

I guess I was lucky. In 1960 I moved to the Santa Clara Valley in California. Lockheed had recently opened a plant there for some new missile and satellite programs. In 1963 we bought a 4br,2ba new tract home for $27K. There was lots of land available as farmers and orchardists were selling out to real estate developers and moving out of the valley to where land was a lot cheaper.

Within a few years Lockheed expanded to become the largest employer in the Bay Area and the workforce jumped to around 35,000 at the peak around 1990 a couple of years before I retired. Then the Cold War ended and the aerospace jobs eventually sank to a low of around 5,000. However the Internet was just starting up and with it came many Hi-Tech companies such as Google, Intel, Sun, Cisco, HP etc., workers flocked in, bought homes and it wasn't long before most of the orchards had disappeared and homes like my $27K tract home were selling for $800K and up. In the most prestigious areas land is selling for $2M/acre and the home that I bought for $107K in 1977 would fetch close to $1.5M even in today's market (as my next door neighbor just found out).

If you can get into anything at the ground floor and grow as it grows it works great.

My wife and I live in a lower cost of living city (Houston) but we bought our house in a higher valued area. Here are my inputs on cost of living:

FMF mentioned taxes, this is pretty key here. No state income tax, sales tax is ~8% which often can be circumvented via online purchases (sadly, no longer true with Amazon!). Our property tax is quite high but considering the aforementioned lack of state income, I think it's fine.

Food: We love to eat and drink out, although we are insanely strict on the budgeting of it ($100-$150 /mo). In Houston, $150 dining out takes you a long way with great food. I compare this to when we lived in Boston and a sole, average sandwich for lunch was $10. Ugh.

Gas: Last time I filled up it was $3.02 /gallon. Our proximity to the Gulf leads to cheap gas without having to even hunt around for it or fill up in the 'burbs. We also bought close into the city so we wouldn't use a lot of gas / waste a lot of time. I have also been told Texas has very cheap energy, although I don't know a lot about that, except we pay for the 100% wind energy that Texas produces.

All that said.. I think there is a point to be made for living in a high cost of living area and making a lot of money, but only in the short-run. I think it's good to settle down where it's cheaper, but to do a job for a few years and live frugally while doing it.. you could save a lot of money up in a high income area. We did this somewhat in Boston, and it worked out great for us when we moved to Houston.

Jonathan, you are right that the biggest impact on cost of living between cities is the cost of housing. Housing can be 10-20 times as much between the extremes. You're right, other things added up don't vary as much. Other expenses can vary quite a bit as well but usually other things vary within 10-20% or less. A lot of things have similar costs like a new car or a dollar menu. But theres still differences. Taxes differ widely across the country, but even there the total difference is less than 10% of total costs and more often 2-5% difference.

Other things that differ:
- Heating and cooling costs. High AC in Arizona and high heat in North Dakota and lower costs in California.
- Insurance. Housing and car insurance can be 100% more in some areas versus others. Home insurance is usually 2-3 times as expensive in Texas versus Idaho for the same cost house.
- Electricity. My dad pays 6c a kWh and some people pay 15c.
- Gasoline. Gas is $2.88 in Tulsa and $3.90 in Hawaii.

Plus if you add it all up some places some stuff is more expensive and other things are less expensive. e.g. Gasoline may be higher in CA but heating costs are much lower. So sometimes it averages out.

Generally speaking in big cities most things can be a bit more expensive.

Johnathan you gave this example :
"Someone making $100k in a high cost of living area spends $90k and saves 10%. Someone in a low cost of living area makes $50k, lives the same lifestyle, and also saves 10%. However, this person only has $5k per year in savings instead of $10k."

From what I've seen wages in high cost areas tend to be around 25% more not 100% more for the same jobs. e.g. an engineer in CA might average $100k but one in Idaho might get $80k. But the cost of living in CA is going to run $90k and the cost of living same standard in Idaho is $60k. So the Californian saves $10k and the Idaho guy saves $20k.

Of course your example is possible and my example is possible. Depends on the job and depends on the location. But typically I think wages don't differ as much as cost of living.

Jim -

Tax differences can be minimal, but they can also be a big difference depending on your income. I know a few very high income individuals who have moved to Texas or Florida because there is zero state income tax.

FMF, Yeah but like I said the max difference is ~10%. Thats sizeable. But most people won't see such large tax differences as they aren't high income earners in the top brackets. Cost of living figures look at averages not top marginal tax rates.
Plus its not just income taxes, states get taxes from many areas so for example while FL and WA have no income tax they are pretty average as far as overall tax burden due to high sales taxes, property taxes etc. Yeah TX is a low tax state.

A major advantage of living in an area that has lots of high wage earners is that it encourages all of the services that you may not consider when you are young and active but become increasingly essential as you get into Medicare age and possibly start having health issues of one form or another. My wife, now 79, was admitted to a hospital on November 30th. and discharged on December 14th. I was with her the whole time and slept on a chair/bed setup next to her every night. The care she received was fabulous. Every room is private, and on her floor her nurse & assistant nurse were responsible for 5 patients. On other floors the ratio dropped to 3:1, 2:1 and 1:1 depending upon the seriousness of the problem. The hospital had all of the latest technology and Medicare pays for most of it except for a $250/day copay for the first 4 days.

Now that she is home there will be visits from a physical therapist, as needed, and visits from a wound vacuum therapist three times/week. The "Wound Vac" is a new device that helps incisions heal faster. It consists of a portable vacuum pump device that creates a vacuum on the inside of the incision so that it heals from the inside out. All, including a Walker, covered by Medicare. The "Wound Vac" has a battery but you need to stay plugged in to an outlet as much as possible to keep the battery charged.

I will only say one thing in terms of defending a high cost area which someone alluded to further up. You will build more equity in theory in your house because real estate in high cost areas tends to jump more than in lower cost areas, so you can cash that out when you go to retire and move somewhere cheaper, or you will have the ability to earn an income stream from the property. of course the coasts are subject to more booms and bust, but in general I would rather own property in a more desirable location with a bigger market in which to sell when you need to.

This is an interesting discussion. I live in a high cost area but lives a more low cost life. I suspect there are more opportunities to make more money in a high cost area -- my salary TRIPLED when I moved from rural New York to Silicon Valley (with one year of graduate school in between), and while I don't make near $250k, I probably could if I aggressively pursued higher-paying jobs in my field.

At the same time, my car is still happily running with 150k miles and I lived rent free for a number of years in California, while I was helping my parents fix up a couple investment properties. I'm about to buy my first house for myself, only after buying 3 houses for investment income (which bring in enough money to pay for themselves AND my new house). I've always been thrifty when it comes to buying material things, though I've never short-changed myself on life experience -- for example I've taken four international vacations this year (which is why I haven't changed to a higher-paying job).

I really think it's more a difference in lifestyle than where you live -- you can be rich or poor in any area (and on any salary), but there are more opportunities to make $250k and save more in a high-cost high-pay area.

It depends on a whole host of factors. 250K is a lot for some, but not for others. I'm sure for the Duggers with a family of 20+, 250K is not a fortune!

Here are some dependent factors including net worth, income, job status, personal savings rate, rate of return, housing status, family status, self-reliance, locale, age, financial education, health, credit, and personal outlook.

taken from

Since I'm about to move to the Detroit, my first though is who want's to live in Redford? And it's a complete apple to orange comparison with Silicon Valley.

And high taxes aren't just income, when I lived in the New York City region I choose higher income taxes (by living in the city about $1500) to higher property taxes (mine were about $1,800 vs. the possible $10,000-12,000 in Long Island and New Jersey that weren't uncommon on semi normal priced homes)

Los Altos is a very pretty, semi-rural town of about 30,000 people and has been home to some of Silicon Valley's most well known people including Steve Jobs (Apple) and Sergey Brin (Google). It is in the heart of the valley and, while not anywhere near the most expensive locations, would appeal to the majority of people for its charm, schools, parks, and proximity to everything you need. There is a pricier sister city called Los Altos Hills which is a little more remote but charming and with nice views.

When evaluating the merits of a place to live I feel that #1 on the list is "Year round climate", other considerations are schools, recreational attractions, job opportunities, crime rate and safety. Los Altos is on the edge of the Santa Cruz mountains which has dozens of beautiful open space preserves that offer great hiking and mountain biking year round.

I only passed through Michigan once in my life and that was in 1958 when we moved from Canada and entered the USA at Point Huron on our way to Demver. I remember asking the border guard about what we should try to see on our way. His reply was "There's nothing much worth seeing until you get to the Rocky Mountains".

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