Want to Save? Your Address Makes a Big Difference

by Vered DeLeeuw · 28 comments

“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?

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{ read the comments below or add one }

  • Pamela says:

    I’m a public school substitute teacher. I grew up middle class suburban, college prep and went to Yale, and I am almost-broke from this economy and being a public school substitute teacher. As such I wind up living in horrible slum ghetto areas wherever I go to try to get a “regular” job instead of just Subbing my life away in northern California where the cost of living is outrageous. Because of my actual income I wind up either in bad areas or living ON-campus at colleges with multiple roommates. I chose the latter. It’s either do the undergrad roommate thing again later in my life this time, or get raped or killed in a bad area, on what I can afford. It’s yet one more CURSE of being female, I guess. Looking like prey to every sex pervert in bad areas just because I’m female and Native American, or live with roommates in a city that’s otherwise way too expensive in the only state in which school districts WILL hire me in this economy. Sucks, doesn’t it. It sucks to be me.

    • jim says:

      WOW! Think of yourself as a victim much? WOW! Such a privileged background and all you can do is p & m. How about looking at some of the positives in your life? Maybe if you had a better attitude (i.e. gratitude) you’d be a helluva lot better off.

  • Skip says:

    MAYBE… although your example of TX has no state income tax, property tax begins at 3%, vs. 1% here in CA., then each independant school district (ISD) assesses an additional “district tax”, much like what we in CA call a Melo-Roose tax. ( Tx schools don’t run off of state money as they do here in CA.) My son bought a very affordable home ($139K) in Katy TX, and the two combined taxes approach nearly $5500/yr. By comparison, I bought my present home in the N. Bay area 20 years ago for $139K, and I’m only paying $1900/yr in property taxes.

  • Bill says:

    Taxes is definitely a big consideration. If you are domiciled in states like California, you are going to be paying about 9.55% of your total income in state income taxes. If you know how to control your tax domicile, you can still spend a lot of months in the places you love, like CA or NYC, and not have to pay the income tax associated with being domiciled there. Its like getting a huge raise.

  • PaoliPete says:

    I went to grad school in the Bay Area, moved to NYC, lived in the Jersey burbs, now live in Chester County west of Philly. My mortgage interest and property taxes, total, are less than i paid in property taxes in New Jersey, and I live in a larger house on 4x the land 3 minutes from horse farms. In the Bay area, for my house, it would be 3x as expensive if not more for a house half the size on a half acre lot. Love the bay area, cant understand why anybody would pay that much to live there anymore. Will retire 10 years earlier by living where i do, than in California.

    The author is spot on.

    • Pamela says:

      I’ll clue you in. For some of us the greater Bay Area is the only place whose school districts will hire us in this economy; and even THAT is only because I started substitute teaching with them back in 2002 so I was still technically “on the books” when I got back with my NYS Math teaching license. Everywhere else I go I will be in the battered womens’ shelters because nothing will hire me because everything is on a hiring freeze or some other BS nonsense that all boils down to “the economy.”

  • ICAMD.org Editor says:

    I teach classes in animation and multimedia video and audio for the web at ICAMD.org and live in the heart of the Castro in San Francisco and key point is I have no children. I am 35 and have a six figure savings rent a small apartment that is in rent control and will someday save enough to buy a house. I love the Mission, Chinatown, Pacific Heights, North Beach and the sixty’s visuals of the free love sidewalks in the Haight, the Avenues have various Vietnamese, Japanese and Russian markets, my own Castro (Eureka Valley Neighborhood) has a great Cuban restaurant, there is Brazilian Steakhouses, Breakfast nooks and plenty of parks and bike paths that are free. I drive in a 10 year old VW Jetta to Oakland, Berkeley, Livermore and Wine Country, Sacramento, Guerneville and the mountain regions of Nevada.

    I would not give it up to have any more money sometimes it is worth living a good life then saving for a mediocre one. Roommates, Cooking and Community Gardens help fill some of these extraneous expenditures for others living here and I disagree that moving is the best thing to do. I have lived in TX, the diverse acceptance is not there like in the Pacific Northwest and SF Bay Area.

    • Pamela says:

      I drive a 20-year-old Mazda. But then I’m not IN the City, I’m way out in the boondocks. And you’re hella right about the diverse acceptance not being there anywhere in “the Heartland” or even in any state that borders Texas on the west – I actually felt OK in Texas’ neighbor to the west but there was too much of the Texan racist homophobic nutcase attitude spilling over.

  • Cath Lawson says:

    Hi Vered – I don’t like where I live. Like most places in England, house prices are several times the average yearly salary. I think it is something like ten times in this area.

    We’ve seriously considered relocating. I would prefer the USA but Canada is easier for us to get a visa. Unfortunately the pound has plummeted against the Canadian dollar and many other currencies, so the move will have to wait.

    I agree though, choosing where to live is tough. Good schools, low crime rate and reasonable priced housing would be nice. Isn’t it Austin in Texas that has good opportunities in technology? Jannie Funster lives there – it may be worth speaking to her.

  • Mike says:

    Hi, you must treat your decision to purchase your home just like any other investment you do. If you invest, what factors or value drivers are driving your capital gain. There are benefits, which are of social nature, so not easily quantifiable, but nonetheless important. If you have children, you might have to move into an area, because this is a catchment area of a good school, or it close to work, or it safe, or it a good address.

    In my opinion, it is more important where you live than what car you drive or how often you go on holiday.

  • James says:

    The best case scenario is to find a top job in a big city that somehow allows you to work from home. This way you can live wherever you want. At this point you move to a location where the cost of living in much less and you get to enjoy your big salary while saving money as you so choose.

  • TestHere says:

    I tend to agree with EveryDayTips.

    This is the case I want to check with everyone. I live in midwest and make a decent salary and have great home compare to my friends who lives in LA/SFO/SanJose where they make great salary but have good home but not as big as mine and expensive too.( My house is 250K and their house 500K and above)

    After twenty 20 years, when we retire and plan to move like Florida and some decent retirement place, who will have the more value from the asset. I think LA/SFO/Sanjose folks will have much more money to spare than me from their house.

    When compared in absolute terms later, they seems to be in better position. Any thoughts?

  • UH2L says:

    You don’t need to live in one of the “cool” metro areas to have a nice home in a safe neighborhood at a reasonable cost in cities with more than enough to do. That’s why I love the Midwest, (biased because I grew up in the Cleveland area, lived in the Detroit area for a while). Chicago is different of course. Lots of people have a negative perception of our other cities and it often stems from the fact that those people haven’t lived here. We have great orchestras and universities that can match San Fran. The job opps aren’t as prevalent which is a problem, but there are jobs to be found.

    Salaries in those cool cities don’t nearly make up for the higher cost of living. I can live here in Minneapolis in a nice condo for around $900 per month rent, 20 minutes from lots of cultural areas, the airport, bike trails, 15 minutes from work… and I can afford to save money in my 401K, take trips to all those other cities where people can’t afford to live. 🙂

    I wrote a blog post about cities where we live from that “cool” perspective here…


  • Doug Warshauer says:

    You are hitting on a real problem. The dispersion of income is far smaller than the dispersion of housing costs. I found a little more data on this – it’s old, but likely still valid: In 2006, the state with the highest median income, New Hampshire with $65,652, was 1.8 times higher than the state with the lowest median income, Mississippi with $36,449.

    Compare that to the median sales price of single family homes in 2008: the San Jose area had a median sales price of $650,000, about 10 times more than $65,800 in Saginaw, MI.

    People who choose to live in areas with high home prices cannot help but spend a heavily disproportionate amount of their income on housing. However, they don’t recognize the impact of the choice of living in a high-housing cost location because they are not spending a disproportionate amount compared to the people they see every day – people who also live in the same geographic region that they do.

    If they had frequent reminders of how much less other people are spending on housing, they would likely think differently about their own choice. But because we naturally compare ourselves far more with our neighbors and those who live in the same region we do, the tremendous disparity between the financial strain housing causes some people compared to others is generally ignored.

    • Pamela says:

      Some of us out here get multiple roommates and live in a decent safe but high-priced area so that we aren’t crime victims on some sort of regular basis just because we’re female. I live in Davis and pay too much for everything else for safety reasons; my other choice was West Sacramento where I was living among registered sex offenders. Now, I’m not “all that” but I attract perverts ANYWAY so it feels like only in Davis am I free from being in danger of being sexually assaulted whenever I go out.

  • Everyday Tips says:

    Living in a nice area has its price all over the country. If you want a safe area with good schools, then you are going to pay for it. If you want to live on the water, then you are really going to pay for it.

    You could always continue living where you do and then sell the house at retirement. Then you would have a nice chunk of change to outright buy a home in a cheaper area.

    • Pamela says:

      You pay more in other ways to live in a filthy crime-ridden ghetto, especially if you’re a woman. How much more will you spend on medical expenses if you’re regularly going to a hospital for rape treatment and rape trauma counseling just because of where you live “to save on rent”? Medical expenses are in the tens of thousands of dollars out of pocket if you’re so marginally-employed that you don’t have insurance, and it’s somewhere other than Massachusetts where Mass Health is free if you’re broke or almost-broke and barely-employed, like say for instance, a Substitute Teacher.

  • heaps! says:

    Where you live is very important. Even moving into a different neighborhood in the same city can make all the difference. I’ve lived in Queens, NY all my life but in a variety of different neighborhoods. What is great about Queens is that it is very commutable to Manhattan (more by public transit, driving is not much of an option) but the cost of living is not nearly as high as living in the center of the city.

    We also have the option of moving into one of the suburbs of NYC, but the property taxes are sky high, and it does not even provide the benefits of living in a bustling urban area.

    It probably is more wise economically to move to a smaller city, perhaps in NJ or such, but it simply isn’t worth living (personally) if I don’t have the convenience and dynamics of a large city.

    And you can always live without even having a car, so no gas, no insurance, no maintenance. I’m sure that makes up for the higher costs of living in a large city.

  • marci357 says:

    It’s what I’ve been saying all along…. You can always move to where living is less expense, if you want to.
    My property taxes on a nice small home (since I remodeled and upgraded it) are under $800/yr. Insurance is about $350. That’s under $100/month for the two.
    Water/sewer bill is fixing to go up – $11/mo in July to about $70, then another $11 in 2011 and another $11 in 2012 to pay for sewer upgrades in the city. So that will take me up to almost $100/month there also in a few years. Electric runs $28-52/month …rural people’s utility district.

    So it will cost me about $250/month for taxes, insurance, utilities when I retire in about 5 years. I think I can handle that. Property taxes may rise, but not that much.

    You can buy a home here for $70,000 – up to a couple million. Most average homes are in the $125,000 – $225,000 range. Affordable. With acreage costs more. Good thing the cost of housing is cheap, cuz the per capita income around here is about $18,000.

    We can get by on less because nature provides so much of what we need – rain for the garden, good cow manure for fertilizer, fish, clams, crabs, game birds, deer and elk. There is a good pioneer spirit here, and a lot of the people get by fine without electricity also when the need arises. Living close to the earth has many advantages. There are also very few stores here – so no place to impulse buy 🙂

    • marci357 says:

      NW Oregon – but Don’t move here if you don’t like RAIN 🙂 and the smell cow manure being spread in the fields 🙂 LOL.

    • MoneyNing says:

      Either you kill the cows by having lots of steak/wearing leather or you live with the cows for milk and labor.

      It is a personal choice indeed. 🙂

    • Pamela says:

      Sure you CAN, if you don’t mind being without a JOB. And being at the whim of every passing potential rapist there is because I’d be living in my CAR.

  • CreditShout says:

    You conclusion makes a lot of sense. Where I live is so expensive because the public school district here is one of the best in the state. I don’t understand why people that don’t even have children, or have children that are out of school continue to live here because the taxes are out of control. I’m sure they have their reasons…

  • MoneyNing says:

    On top of the fact that everything just cost more in bigger, more urban cities, there are more temptations to buy when you live in a bigger city.

    If you like the lifestyle, then stay but only if you can handle the pressure of the need to make a higher income.

    Otherwise, moving is probably a good long term strategy.

    It all boils down to personal choice.

  • Olivia says:

    While my husband was in graduate school he owned a car. The campus straddled city and suburban addresses. If he listed the car in the city his car insurance would have been double that of the suburban locale.

    • MoneyNing says:

      When I was in school, many of us did the same thing (provide our home address instead of the address where we actually were residing in) to lower our premiums. I had that some insurance companies try to deny claims because of this though, because we essentially provided false information.

      Be careful if you are still doing this.

      • Olivia says:

        It was actually quite legit. The school and his dorm were physically in the suburbs, so the car was there too. A parking lot, another dorm, and mailing address were in the city.

  • Cd Phi says:

    Very important point made here. Likewise, my family and I also moved to a more upscale area because where we were living was becoming really dangerous. Although we didn’t move to the most upscale area near our home, we did move to a nicer neighborhood because you can’t really put a price on the safety of your family.

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