“We have to get out of here,” my husband said. “Living here eats up whatever we make. We will never be able to save significant amounts of money as long as we stay here.”
He was right, of course. Living in the San Francisco Bay Area of California, one of the most expensive locations in the United States, is wonderful – the culture here is amazing, the population diverse and very tolerant, and the weather is mild year-round. We love the Silicon Valley with all the career opportunities it presents us, and we enjoy being surrounded by smart, ambitious people and lots of entrepreneurs. However, the price tag attached to living here is hefty.
According to city-data.com, the local cost of living index is twice that of the average U.S. cost of living. The estimated median house value is about three times the U.S. average. Sure, salaries here are high too – estimated median household income in the San Francisco suburb where I live is about 1.5 times the average U.S. income – but obviously that doesn’t cover the cost of living and especially not the cost of real estate.
When Cost of Living Is Too High
We live in an area where the higher income is not high enough to cover the much higher cost of living. From a purely financial point of view, we really shouldn’t be living here – it just doesn’t make sense. Indeed, we keep toying with the idea of relocating and have looked at both Davis, California and Austin, Texas as valid options. Both communities are much more affordable than the Bay Area, with a cost of living index that is either at the U.S. average (Davis) or below (Austin) and much lower real estate prices.
Taxes Are Important Too
Another consideration when choosing where to live is taxes. So for us, if we do end up relocating, we should keep in mind that Texas has no state personal income tax, while California’s high bracket is a whopping 10.55%. This is a big difference, especially for young people who are still earning. There are also significant differences between the states when it comes to sales tax.
Keeping Up With The Joneses
When you live in a wealthy area, you enjoy beautiful surroundings and a crime-free environment, but you will also find yourself spending more than you would have spent if you lived in an average area. Ideally we should ignore our neighbors and do our own thing, but unfortunately human nature makes that very difficult to do.
Sometimes We Choose To Pay More Because We Get More
Despite how insanely expensive the Bay Area is, my family is still here. There are many valid reasons for staying, or choosing to live, in an expensive area or state – better career opportunities, better schools and colleges, top rated hospitals, access to top notch medical care. Some people are willing to pay more for living in a big, vibrant city, for living in an urban setting or for enjoying great, mild weather year-round. We have friends who told us they’d rather stay in California because the state has great state colleges, so they feel that staying in California would open up more opportunities for their children.
The main point I’d like to make here is that part of your financial planning should be your location. Of course, there’s a balance to strike – living in a cheap area with a high crime rate doesn’t make sense, and living in an area where real estate is affordable but you can’t get a job doesn’t make much sense either – unless you are ready to retire. Of course, many of us are willing to pay more to live in an urban area, near the coast, or where we have exciting career opportunities.
But whatever your specific circumstances are, and whatever your individual preferences, it’s important to remember that your location has a big impact on your finances, and to plan accordingly. Want to retire comfortably? The answer may be to move. Right now!
Where do you live? Do you feel that you have made the right choice, or are you dreaming about relocating?