Where You Live Matters: Finances and Location

by Miranda Marquit · 4 comments

locationA lot of the time we get sucked into thinking that moving to a bigger city can help with finances because you can find a higher-paying job. Unfortunately, that higher-paying job often comes with a higher cost of living.

I read a story recently on CNBC about cities in the United States where a $50,000 salary could go a long way. It got me thinking again about cost of living, location, and finances.

Where You Live Matters to Your Money

Deciding where to live is a big choice, but it’s about more than just your income. It’s also important to consider how much something will cost. I moved to Idaho for a very simple reason: my income could go much further in a small town of 50,000 people than it could go in Philadelphia. The difference is stark.

However, as the CNBC article points out, it’s possible to enjoy city living even without the high price tag. Cities like Memphis, Detroit, and Pittsburgh provide some of that city lifestyle without the costs you see in New York or San Francisco (or even Philadelphia). In my neck of the woods, it’s still pretty cost-effective to live in Boise or Salt Lake City.

Where you live can have a huge impact on your finances. In my case, moving to Idaho Falls not only means a much lower cost of living, but it also means I’m closer to family. This is a big help when it comes to raising my son. My siblings have all moved back to the inter-mountain west in the last couple of years, and a big part of that is the low cost of living and the help we receive from having our kids close to grandma and grandpa.

What’s Your Disposable Income?

Figure out how much you have left to spend after you have taken care of your expenses. Can you comfortably pay for your needs? Are you able to pay for housing and food without stretching all the time? Moving to a lower-cost area can help you better pay for your needs. It can also help when it comes to your wants.

After your needs are paid, do you have money left over for some of your wants? Can you set money aside for the future? Living in a lower-cost area might provide you with the chance to eat out a little more, go to the movies, and enroll your kids in more extracurricular activities.

Of course, the downside is that you might not have access to higher-paying jobs in areas with a low cost of living. You need to do a balancing act. In some areas, the lower salary is still fine, because the difference in cost of living is so great. There are other areas, though, where wages are so low that they still can’t keep up with the lower cost of living. Once you factor in moving costs, it might not be worth it to move.

In the end, the important thing is to do your research. Research the possibilities, and figure out what might work best for you. Weigh the lower income with the cost of living to see if the two really balance out.

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{ read the comments below or add one }

Ms. Montana September 20, 2016 at 5:13 pm

We live in the Flathead valley in Montana, which has amazing recreation. Housing isn’t cheap, but not crazy. Wages tend to be lower, which is the downside. But I love living in the place that people are willing to spend their only two weeks of vacation.

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David Ning September 20, 2016 at 7:18 pm

Flathead Valley… I need to check this place out! Any tips for first time visitors?

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freebird September 20, 2016 at 8:49 am

Let me take the other end of this– if you’re a good saver who’s thinking of sprinting to financial independence and if you have the right skill set, living in a bubble location can be a great move. Just don’t get too settled because if you can then retire to a much lower cost location, your target investment portfolio gets that much smaller– so you can reach it sooner.

These days we see stories about young software engineers living in RVs parked at their silicon valley workplaces in order to save big on housing (median rent in the area around Google HQ runs $4500/mon). If that’s too extreme, you can take roommate(s), rent an illegal garage conversion, or live farther afield and drive the >1 hour each way.

Once you get your cost of housing way down, remaining living expenses aren’t much higher than the US average, so the gap between wages and costs can go as high as adding double the median household spend to your net worth every year by doing this. So assuming 7% annual growth on your investments, your portfolio can reach 30x median spend in just a decade.

I sort of did this, except I worked my way into a technical niche that was ideally-suited for telecommuting. It was wide open playing field because the higher-paying management slots was where all my competition went (necessary to afford a home in a good school district). So once I hit my number, rather than quit, I moved to my lower-cost retirement destination and arranged to work my job remotely at the same salary I had back in the valley. It’s all gravy now.

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David Ning September 20, 2016 at 7:17 pm

You definitely have a good setup going freebird.

And you make a good point about potentially being able to save more by working in a high cost area. It’s not easy because your peers will all be living it up, but it can work extremely well if you can figure out the living way below your means game.

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