Cost of Living Matters a Great Deal to Your Budget

by Miranda Marquit · 7 comments

Trying to figure out how to survive on a budget is one of most challenging things you can do.

And those in high cost of living areas can find it even more challenging, because how much everything costs can vary significant depending on where you live.

In fact, just moving from a state that levy an income tax to a state that doesn’t could save most people a few thousand dollars. I know several people who have moved to Tennessee in recent years to save money on income taxes and the savings are real.

It’s Not Just About Income Tax

Income tax isn’t the only potential savings when you move though. Cost of living play a big part in the equation as well. I actually moved to a state with higher personal income taxes almost two years ago, and I still ended up saving more money. In Idaho Falls, Idaho, my rent is half what it was when I lived outside Philadelphia (and my rental is twice the size). Food costs are lower too.

Saving money on necessities provides me with a way to do more with my money. I don’t really care that much about the tax bill. It’s not making a huge dent – at least it’s not making a big enough dent for me to want to move back to Philadelphia right now.

Don’t Get Hung Up Salary

Plus, because of the lower cost of living, I can afford to work a bit less and still have disposable income. This lowers the taxes I have to pay as well because I’m not earning as much.

We get hung up on salary too often, but let’s be real – you can probably do more with $60,000 a year in Idaho than you could with $100,000 a year in San Francisco or New York City.

Taking a pay cut doesn’t always mean enduring a drop in quality of life. Depending on where you live, a lower salary can actually mean a higher quality of life. I’m living proof of that.

I was able to cut back on work when I moved to Idaho. I get to spend more time with my son, and I have more money to travel. These are great things that improved my quality of life, even if I make less money than a few years ago.

Making Trade-Offs

Of course, the downside is that sometimes I don’t get access to the things I enjoyed before. Food, cultural experiences, and walkability are not as big a part of my life here as they were before. I have fewer opportunities for these varied experiences because these things just aren’t available where I now live.

Sometimes, the trade-offs for a lower cost of living involve giving up some aspects of life that you enjoyed before. I have other activities that help make up for it, but there are times when I miss aspects of my old living arrangement.

If you are struggling with your budget, one thing to consider is that you might be able to stretch things if you move elsewhere. You don’t have to move across the country like I did, but sometimes making a change to your living situation can help your financial situation.

David’s Note: I’ve lived in three different countries, and I totally see Miranda’s point of view. Where you decide to pay to put your mattress alone makes a huge difference in the budget because it’s a fixed expense that never goes away. On the other hand, some people I know rather live in a high cost of living area, grab that higher salary first, and then live on much less than average to bank more savings than if they were living in a lower cost of living area. I can see the beauty in this approach too since I’m a saver myself, but walking this path can be more difficult because it’ll be harder to feel comfortable when everyone around you will, unfortunately, criticize you for your spending habits and beliefs.

Another factor that’s extremely important is to look within and see how your values fit in with the surroundings. If you are trying to retire super early while living along the coast by saving a majority of your salary, know that most people around you who can afford to quit young probably didn’t get there because they saved a majority of an average salary. There will of course be some like-minded individuals wherever you live, but it’ll be harder to find true friends to spend time with.

There’s no right or wrong way to go here. Wherever you decide to live, just make sure you know exactly why you are there and not because of reasons like “well, I’ve always been here and I’m too lazy to do something to change.”

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{ read the comments below or add one }

  • freebird says:

    David, I’m one of those ‘on the other hand’ people. I would add that it’s more than just the higher salary, there’s also company stock and options plus the chance to network with a high-potential crowd. Who knows if the guy or gal you co-author papers with turns into the next Mark Z or Oprah? Depending upon your aspirations there may be some upper-tail opportunity cost settling in Podunk.

    Agreed it can be hard to control expenses in this heady environment, especially if you seriously believe you are destined to strike it rich. My take is to realize that the odds of making it big are low, and you will more likely than not have to accept a consolation prize. If you hang out with level-headed people who aren’t spending the fortune they’re sure is just around the corner, you’ll be fine and will at least reach financial independence if mega-wealth doesn’t materialize.

    Good point about the surroundings, the places dreamers pile in to kill it aren’t ideal for retirement living. But rent and congestion in Margaritaville aren’t very much, so just be prepared to relocate once school’s out forever.

    One point Miranda made has me thinking– I’ve ‘semi-retired’ into a remote assignment where all I need is high speed internet to do my thing, but I’ve stayed along the left coast (moved southland close to the water). I found I don’t really enjoy the beach, so I may be able to pocket what I pay the FTB if I live in the desert or up in the PNW.

    • David @ says:

      Thanks for your perspective freebird. You are right – you never know who you’ll end up hanging out with when you are living in the fast pace areas. I believe all of Mark Z’s college friends at least got the opportunity to work/invest in Facebook early. So did a bunch of people who were friends with Jack ma, the founder of Alibaba.

      Of course, most probably declined and they will have to live with not paying for that eventual winning lottery ticket for the rest of their lives but that’s another story.

      And I didn’t know you were in California! (FTB mentions gave it away). I’m in Southern California. I’m doing very well but I have lapse in discipline every once in a while because it is hard not to keep up with the Joneses sometimes, especially when it comes to living quarters because, hey, growing kids can always use more indoor/outdoor space.

      • freebird says:

        Funny, I’m one of those ‘declined an eventual winning lottery ticket’ guys as well. A long time ago I worked in the same lab as a kid who became rich & famous a few years back. When we last touched base he had just finished med school and was setting up a hedge fund. I figured he was either clueless and about to get clobbered, or worse maybe he went rogue like what we know today as Madoff. Well his crazy bet paid off and became a movie last year!

        Yes I’m south of you not far from UCSD. I hear you about the challenges of reaching financial independence after having kids. Not just in living space, the whole child development expense category (mainly education) is eye-watering. It’s pretty easy to limit spending when you’re on your own but when you think it might disadvantage your kids down the road … not really a choice, is it? This is why even though I don’t have kids myself, I think this category should be more socialized.

        • David @ says:

          Ahh going with that guy sounded like an almost impossible bet to make though, so it’s not something that you need to think about too much. It sounds like you are doing really well, and that’s what’s truly important.

          Good to know that you are pretty close by. Education is socialized though through public education. The problem is that there are bound to be people trying to get a leg up and people who are trying to make a buck, driving everyone’s costs and stress up.

          In our area, the parents with high school kids are always complaining that the system isn’t fair and their kids are expected to know so much that’s not even taught in classes. Hopefully the trend won’t continue, because my kids will have an even tougher time in a decade or so.

  • Brad says:

    Beyond standard cost-of-living expenses, people also need to be careful of lifestyle creep. I live just outside of Charleston SC. BEAUTIFUL area, great dining options, tons to do – and it can make you broke if you aren’t careful.

  • Manny Richard says:

    Great article. I’m trying to keep a habit of saving and curbing my expenses. For me, I use a site called to calculate how many hours I have to work to buy something. Once I see the result, I realize weather or not something’s is worth buying.

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