Where You Live Can Kill Your Finances

I always find these sorts of pieces entertaining.

Here's a piece from MSN about a couple who finds it difficult to make ends meet even though they earn $125k per year.

The overview:

Sharon Winick, 49, and her husband Michael have three children and own a home in Chevy Chase, Maryland, where Michael is a network administrator. Sharon is a paralegal turned stay-at-home mom. Between his work, her occasional side jobs and their investments, they bring in roughly $125,000 a year. Yet they struggle to make ends meet.

"The amount of money we spend every month is more that we make, it's been that way since we had our first daughter," Winick said.

The main reason they are struggling: they live in a high cost-of-living area.

Here's a list of the highest-cost cities in America.

Number 6 is Washington, D.C., the area where the couple lives.

Here's what the article said about the costs there:

Housing-related expenses including rents and mortgages are by far the most burdensome at more than double the national average.

Imagine how your budget would be impacted if your housing costs, which are generally the highest costs a family has, were DOUBLE what they are now.

That's a budget buster for sure!

In the rest of the U.S. where most of us live, $125k can be quite a large amount.

It is, after all, over twice what the average family in America earns, so somewhere you can certainly make it on $125k.

Yes, where you live has a big impact on your net worth -- for better or for worse.

My recommendation is to earn a high income like this couple does, but do it in a low cost-of-living city.

If you can do that (and yes, it can be done) you can become wealthy.

Comments

[J. Money]

If only you had a choice of where all your friends and family live ;)

[rubin pham]

i see many american retirees living in thailand. one guy i know, he is in his late 30 and retired from the us army. he told me he spent around 1k usd a month in a beach town in thailand. low cost of living, great weather and no more jury duty he told me.

[freebird]

Depending upon your skillset and work attitudes, my feeling is where you live can also have a major effect on your income trajectory. I was born and raised in a rust belt town where cost of living is very low (median house costs five figures), but there they simply offer no jobs and associated income like the one I grew into in silicon valley.

I think the key is to understand the inflated living costs and to adjust expenses accordingly. A six figure income in a high cost of living area could be like minimum wage elsewhere so spending needs to scale down. I've found it's possible to keep costs low in the expensive places mainly by shopping my rent down. Living small, sharing, or taking a longer commute are viable options. These days street living (in an RV) is getting more popular. Put the savings into the stock market.

True you lose the chance to build home equity but I never planned to retire there, and after a couple of decades of work I downshifted to a somewhat lower cost area of coastal California. I kept my job though, now work remotely so I can live anywhere that has high speed internet. I'm not about to go back to my old hometown though, I've grown accustomed to a warm and dry climate.