Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

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bigtex
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Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bigtex » Wed Oct 31, 2018 7:03 am

Hello,

From a financial standpoint, or achieving financial independence, is it better to live in a HCOL or LCOL area? A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more. Just seems that going from HCOL during a working career to a LCOL can make a big difference.

quantAndHold
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by quantAndHold » Wed Oct 31, 2018 7:13 am

It’s more important to live where your income is greater than your expenses. Depending on your job, that might be HCOL or LCOL. Many LCOL areas are LCOL because they don’t have many high paying jobs. And a HCOL location isn’t going to help you much if you don’t have the right skills to get a high paying job there.

More important for your relative was getting lucky in the California housing market. Something that is not a given.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by PFInterest » Wed Oct 31, 2018 7:14 am

bigtex wrote:
Wed Oct 31, 2018 7:03 am
Hello,

From a financial standpoint, or achieving financial independence, is it better to live in a HCOL or LCOL area? A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more. Just seems that going from HCOL during a working career to a LCOL can make a big difference.
yes....

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by AlohaJoe » Wed Oct 31, 2018 7:16 am

Sounds to me that, for your relative, living in a HCOL area was the key. That's why he had a house with a million dollars.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by HEDGEFUNDIE » Wed Oct 31, 2018 7:19 am

Some high paying jobs pay more in HCOL areas, more than enough to make up for the HCOL. Tech in SF, finance in NY, etc.

This is my second year living in the Bay Area, having moved here from Chicago. I am able to save $30k more here than if I had stayed in Chicago. That $30k goes into the same stock market that we all have access to no matter where we live. Over time compounding will have a huge effect. So in another 15-20 years I can choose to live anywhere I want, not something I can say if I had stayed in Chicago.
Last edited by HEDGEFUNDIE on Wed Oct 31, 2018 7:21 am, edited 1 time in total.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by simplesimon » Wed Oct 31, 2018 7:19 am

Assuming similar cost structure in both areas (high paying job & high living expenses vs. lower paying job & lower living expenses), it's much easier to go from HCOL to LCOL than the other way around. The extra nominal dollars earned will just go farther elsewhere.

Same applies globally. It's much easier to live, earn, and save in the U.S. then move to a LCOL country than the other way around.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by wolf359 » Wed Oct 31, 2018 7:49 am

When building wealth, It is most advantageous to live in a LCOL area with a HCOL income.

I've seen this pulled off several ways.
1) Work in a HCOL area but live in a LCOL area and have a big commute (or telecommute). Examples: Work in Northern VA but live in West VA. Work in Manhattan but live in New Jersey (although that is VHCOL to HCOL these days). Work in big city but live in bedroom community

2) Work in a HCOL area but with a lower standard of living during accumulation stage, then move to LCOL area after retirement. House is sold and used to help fund retirement. Examples: Sell house in San Francisco to buy house in Tennessee. Sell house in Northern VA to buy house in Florida. Sell house in Seattle to buy house in Iowa.

3) Work and live in a LCOL area but get paid income that is based on a HCOL area. Examples: Some states pay teachers the same rate in all districts. In that case, the salary that might be reasonable but not great in the richest city in that state would actually be a really good salary in the poorest county in that same state. I knew someone who was living in Alabama but getting paid by a multi-national corporation in Euros. Someone else was living in the Philippines and getting paid in USD for another multi-national.

4) Move from a LCOL area, get the HCOL salary, but continue to live at the LCOL standard. I lived at a student standard of living for as long as I could after college. It's easy to cut back and economize when everything seems too expensive or overpriced. I was also willing to put up with roommates because housing was so much.

The difference between LCOL and HCOL areas is in the opportunities for culture, social opportunities, and recreation. Infrastructure, such as hospitals and police are generally better in HCOL areas. (They're HCOL because more people want to live there.) A happy compromise is to seek out smaller college towns. They're generally lower cost, but with dynamic social and cultural opportunities.
Last edited by wolf359 on Wed Oct 31, 2018 8:03 am, edited 1 time in total.

bigtex
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bigtex » Wed Oct 31, 2018 7:55 am

simplesimon wrote:
Wed Oct 31, 2018 7:19 am
Assuming similar cost structure in both areas (high paying job & high living expenses vs. lower paying job & lower living expenses), it's much easier to go from HCOL to LCOL than the other way around. The extra nominal dollars earned will just go farther elsewhere.

Same applies globally. It's much easier to live, earn, and save in the U.S. then move to a LCOL country than the other way around.
Yes, this was exactly my thinking. I personally live in a LCOL area and make LCOL wages. I am able to save adequately, but I feel like I am stuck in a LCOL area indefinitely unless I make a move to HCOL area with higher wages while I am still young. I am very frugal and know how to manage expenses and run a barebones budget if need be, but I feel I will always be penalized by the lower wages in the LCOL areas. I could truly get more dollars working for me in HCOL and still be frugal and keep down my expenses. Just some thoughts I had.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by KlangFool » Wed Oct 31, 2018 8:12 am

OP,

I save at least one year of expense every year. This is independent of where I live and how much that I get paid. So, other than my big mistake of gambling on Telecom stock that wiped out 50% of my savings/investment, I would be FI in 25 years or less. I am an engineer. I always get paid well as compare to the average folks. So, this is independent of whether I am in an HCOL or LCOL area.

Our answers are useless to you. In my case, I get paid about the same regardless of where I live. So, there is no reason for me to live in a VHCOL area like the Bay Area. In fact, with my current job, I could live anywhere in the USA with a major airport. But, this is me. How would this information be useful to you?

I believe that your thinking might be wrong. But, I do not know you and your background. You should start a topic and provide your specific information and asked point blank how you could make money. I am not sure that moving to an HCOL area is necessary.

A big fish in a small pond could make a lot of money too.

KlangFool

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by GrowthSeeker » Wed Oct 31, 2018 8:16 am

Choose a means of gaining income that is relatively independent of the local cost of living, ie things that pay only a little more (if any) in HCOL areas than LCOL areas. But live in a LCOL area.
Just because you're paranoid doesn't mean they're NOT out to get you.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by KlangFool » Wed Oct 31, 2018 8:31 am

OP,

Just to show you that how irrelevant this question is for some folks.

A) I telecommute for my US job for a few years out of Asia. My living expense for an upper-middle-class family in that country is about 1K to 2K per month.

B) My family member worked as a US Ex-pat in Asia. His monthly rent is about US 10K per month. But, as an ex-pat, the employer paid all living expenses (rent, kids at International school, income tax). So, essentially, he had zero cost of living in a VHCOL area.

KlangFool

bigtex
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bigtex » Wed Oct 31, 2018 8:36 am

KlangFool wrote:
Wed Oct 31, 2018 8:31 am
OP,

Just to show you that how irrelevant this question is for some folks.

A) I telecommute for my US job for a few years out of Asia. My living expense for an upper-middle-class family in that country is about 1K to 2K per month.

B) My family member worked as a US Ex-pat in Asia. His monthly rent is about US 10K per month. But, as an ex-pat, the employer paid all living expenses (rent, kids at International school, income tax). So, essentially, he had zero cost of living in a VHCOL area.

KlangFool
Thanks KlangFool. Just way too many variables to gather anything useful from my original post.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by THY4373 » Wed Oct 31, 2018 8:42 am

I moved from a HCOL to LCOL area and I am ahead (at least I think so it is hard to know where one's career might have gone if I had stayed in a HCOL area). I think this is going to be so highly dependent on the particulars of your situation that it is going to be hard to generalize. I do think that all else being equal it is good to start your career in a HCOL area (or at least a very competitive sellers market type of job market) and then move to a LCOL area if that makes sense later in your career.

Another thing to consider are life style considerations. My ex is from the Bay Area and so I have spent a lot of time there with her family. I love the Bay Area weather and the whole vibe there but the traffic and housing costs totally kill it for me (others will have other priorities). I love my LCOL area with no traffic. My office for the two days a week I go in is 12 minutes away pretty much any time of day or night and my son's school is 10 minutes away. I love the sanity that brings to my life.

When I retire I am actually considering moving back to a HCOL due to the fact that I won't need a large place and traffic will be far less of an issue when I don't need to commute or take my son to school.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by simplesimon » Wed Oct 31, 2018 8:51 am

bigtex wrote:
Wed Oct 31, 2018 7:55 am
simplesimon wrote:
Wed Oct 31, 2018 7:19 am
Assuming similar cost structure in both areas (high paying job & high living expenses vs. lower paying job & lower living expenses), it's much easier to go from HCOL to LCOL than the other way around. The extra nominal dollars earned will just go farther elsewhere.

Same applies globally. It's much easier to live, earn, and save in the U.S. then move to a LCOL country than the other way around.
Yes, this was exactly my thinking. I personally live in a LCOL area and make LCOL wages. I am able to save adequately, but I feel like I am stuck in a LCOL area indefinitely unless I make a move to HCOL area with higher wages while I am still young. I am very frugal and know how to manage expenses and run a barebones budget if need be, but I feel I will always be penalized by the lower wages in the LCOL areas. I could truly get more dollars working for me in HCOL and still be frugal and keep down my expenses. Just some thoughts I had.
A side business could really help you if you have the time. Otherwise, if your skills command a much higher salary elsewhere and you're young and single, I'd move. What do you have to lose?

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bradshaw1965 » Wed Oct 31, 2018 8:56 am

I've lived in Atlanta for most of my career with a relatively LCOL but because it is a regional hub the wages have been pretty robust. If you find ways to deal with the traffic, Atlanta is pretty livable.

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Watty
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by Watty » Wed Oct 31, 2018 8:59 am

It is just anecdotal but I moved from the Bay Area, which has always been a high cost of living area, to a much lower cost of living area in the 1980's when I was ready to buy my first house and to an even lower cost of living area in a job transfer about 20 years later and that worked out very well for me and I was able to retire when I was 58.

In moving around the country my impression is that for most jobs the regional salary differences are not anywhere near enough to cover the higher living expenses in the high cost of living areas.

There can be some special cases like people who are a high level financial wizard working on Wall Street, or a design level computer geek working in Silicon Valley but those positions are rarer than you might think since even in those fields only a small percentage of the people are the top highly paid tier that makes living in a high cost of living area easily affordable.

In most fields if you are not in that top tier there will be similar jobs in any large or even medium size city.

You don't even have to wait until you have a million dollar home to sell to make living in a lower cost of living area work well.

I am living in Atlanta now which still has a reasonable cost of living but it might now be called a medium cost of living area instead of low. For example in the suburbs you can get a nice house in a nice area with good schools for less than $300K like this one.
https://www.realtor.com/realestateandho ... 22&view=qv

In a prime area or close to downtown houses could cost a lot more but many jobs are in the suburbs so you may not need to live near downtown.

Here are two real examples from here;

1) My son is in his late 20s and has a Computer Science degree and is working as a software engineer. He has a group of college friends who all graduated with computer degrees at the same time. With a few years experience they all have jobs with six figure incomes and they all bought houses by the time they were in their mid 20's. At least one of them bought the house with a 15 year mortgages so it will be paid off around the time they are 40. There is no shortage of jobs for them and they work at a range of companies from startups to Fortune 500 companies. They are all doing very well but other friends of theirs that got college degrees in less highly paid fields have also been able to afford to buy decent houses in their 20's.

2) Some friends of ours have a son that is severely dyslexic and barely graduated from high school. At one point he was working at a chain muffler shop which was a good honest job but I am sure that it did not pay a lot. Even with his income he was able to live with his parents for a few years to save up some money and then he bought a small older house that needed mainly cosmetic work. It is in a less desirable but not terrible area. Prices have gone up some but you can still get houses like that for the low $100's here.

When I lived in the Bay Area one thing I saw was that some of my older coworkers had grown kids that were well into their 20's that were still living with their parents because they could not afford an apartment even with roommates.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by HueyLD » Wed Oct 31, 2018 9:00 am

I heard this saying: "young man, move to where good jobs are!" many times. However, in some parts of the country, people prefer to stay put despite low wages and not so low cost of living.

I think it is a cultural thing for them. There is nothing wrong with that approach as money is not the only thing in life.

Same can be said for those who live in HCOL areas with mediocre jobs. They simply prefer their lifestyle there.

Different strokes for different folks.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by KlangFool » Wed Oct 31, 2018 9:08 am

OP,

When you asked the wrong question, you will never get the right answer.

FI has nothing to do with HCOL or LCOL. It has to do with the saving rate. If a person could save 1 year of expense every year, the person could FI quickly. This could be achieved in an HCOL or LCOL area as long as the person has the right amount of income in those areas.

So, are you saving 1 year of expense every year now?

KlangFool

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by greg24 » Wed Oct 31, 2018 9:21 am

You can reach FI in both types of areas.

But each area has a different dispersion of outcomes.

I view living in a HCOL similar to being 100% equities. There is more risk (buying that 3 BR ranch for $1.5M), but you can end up with a bigger pile at the end.

LCOL is similar to 60/40 and has less risk (a lot easier to pay off your mortgage in your 40s in flyover country), but your final number may be smaller.

I think people should live where they want to live. Chasing dollars typically doesn't make people happy.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by michaeljc70 » Wed Oct 31, 2018 9:37 am

You've gotten some good responses. I've always thought it would be very hard to move from a LCOL area after working their your whole life and retire to anywhere other than a LCOL area. You would have probably had a lower priced house so less appreciation dollarwise. You probably would have had a lower salary, so less to invest/save. There are exceptions of course.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by sawhorse » Wed Oct 31, 2018 9:49 am

I have lived in low, moderate, and high cost areas. Without question, if my husband could a find job in his field, I would live in the low cost area.

The difference in rent/real estate between the low and high cost areas is around 10x. Owning a house in the high cost area is out of the question because we can't save for a down payment.

Overall cost of living (including rent) is probably at least 6x in the high versus low cost areas. This is definitely not compensated for with income differences. The difference in income for most comparable jobs is maybe 2x.

But...the jobs just aren't there. We were forced to move to our current location because there weren't any jobs in my husband's field. We would have been more than willing to work the same job for less money in the low cost area, but that wasn't an option because no such jobs existed.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by TheOscarGuy » Wed Oct 31, 2018 9:51 am

bigtex wrote:
Wed Oct 31, 2018 7:03 am
Hello,

From a financial standpoint, or achieving financial independence, is it better to live in a HCOL or LCOL area? A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more. Just seems that going from HCOL during a working career to a LCOL can make a big difference.
How much can you save is what matters. It does not matter where you are (well it does from a quality of life point, but not from a financial standpoint) if your savings rate is high.

Ofcourse, you can always assume that house is your retirement and bank on property values in HCOL (say bay area) maintain their steady increase and NOT save anything for retirement. Its a bad strategy, but it is a strategy and sounds like that is what your relative did.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by Thegame14 » Wed Oct 31, 2018 9:53 am

It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.

bigtex
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bigtex » Wed Oct 31, 2018 10:03 am

KlangFool wrote:
Wed Oct 31, 2018 9:08 am
OP,

When you asked the wrong question, you will never get the right answer.

FI has nothing to do with HCOL or LCOL. It has to do with the saving rate. If a person could save 1 year of expense every year, the person could FI quickly. This could be achieved in an HCOL or LCOL area as long as the person has the right amount of income in those areas.

So, are you saving 1 year of expense every year now?

KlangFool
No, I'm saving 50% of my annual expense every year though.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by sawhorse » Wed Oct 31, 2018 10:04 am

Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher
If your salary is higher in proportion to the cost of living. That usually is not the case with very high cost areas. The difference in salary might be 2x whereas the difference in cost might be 6x or more.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by TheOscarGuy » Wed Oct 31, 2018 10:07 am

Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by BrooklynInvest » Wed Oct 31, 2018 10:19 am

It's a great question. For longer term employees, I've seen the middle path work for a while -

Work in HCOL area, with higher salary, then once well-established telecommute from LCOL area. Salaries tend not to be adjusted.

There is a real risk of being out of sight out of mind but might be worth considering as I get closer to retirement.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by Thegame14 » Wed Oct 31, 2018 10:20 am

TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by HomerJ » Wed Oct 31, 2018 10:24 am

bigtex wrote:
Wed Oct 31, 2018 7:03 am
Hello,

From a financial standpoint, or achieving financial independence, is it better to live in a HCOL or LCOL area? A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more. Just seems that going from HCOL during a working career to a LCOL can make a big difference.
Going from HCOL to LCOL is hugely advantageous.

Every RETIRED person currently living in a HCOL area will be more financially independent if they move to a LCOL area.

They may not like to make that change, leaving family, friends, or an area they really like.

But, of course, cutting your housing costs (or freeing up that equity to spend) by 50%-80% is going to make you more financially independent. That isn't hard math.

Now for a WORKING person, it's somewhat different. HCOL areas pay higher than LCOL areas, but not all jobs get enough bump in salary to make it worthwhile.

For instance, as an IT infrastructure guy, I could probably make 50% more in California, but my housing costs would triple (and that's for a smaller, less comfortable house).

So I feel I was able to save more and become more financially independent with a good paying job living in a LCOL area.

I could be richer in the long run working in a HCOL area, if housing continued to grow faster than salaries and inflation, and I sold my California house for a huge profit, and moved back to a LCOL area in retirement.

But I don't want to count on housing prices growing to the moon. I like saving more of my salary each year instead of hoping my $1 million shack turns into a $2 million dollar shack.

Now, if you were a highly sought after programmer in California, you might make 300% more than a programmer in LCOL area, and the math would work out in favor of HCOL.
Last edited by HomerJ on Wed Oct 31, 2018 10:44 am, edited 1 time in total.
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by sunny_socal » Wed Oct 31, 2018 10:30 am

Live in a HCOL area and have a HCOL job, but live a LCOL lifestyle.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bigtex » Wed Oct 31, 2018 10:37 am

Let’s sort this out real quick. Would LCOL area be anything with a cost of living index of 100 or less? And HCOL anything over like 150? And in between would be MCOL?

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by HomerJ » Wed Oct 31, 2018 10:43 am

Thegame14 wrote:
Wed Oct 31, 2018 10:20 am
TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.
I agree percentages aren't a good way to look at it, but absolute numbers do show that many times one can save more in a LCOL area.

You compared a $300k person with a $30k person. There is no such comparison in the real world. Someone with the skills to make $300k in San Fran is not making $30k in Kansas City.

Taxes are also a real consideration. The Kansas City guy with $180k salary may indeed be saving more each year than the $300k guy in San Fran.

But the San Fran guy will probably end up richer because his $1 million shack will sell for $2-3 million someday. But it might not. Meanwhile, the KC guy absolutely could be saving and investing more actual dollars each year even with much a lower salary.
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by Watty » Wed Oct 31, 2018 11:03 am

HomerJ wrote:
Wed Oct 31, 2018 10:24 am
Now, if you were a highly sought after programmer in California, you might make 300% more than a programmer in LCOL area, and the math would work out in favor of HCOL.
Taxes complicate that a lot since a lot of the gains would be lost to taxes.

Judging by some of the posts here some programmers at tech companies in California do make a spectacular salary with their stock options but I think that is more the exception than the rule.

Even in California most programmers probably do things like working for hospitals, the DMV, supermarket chains or other ordinary businesses.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by oldlongbeard » Wed Oct 31, 2018 11:13 am

....I am at a point in life where money just isn't everything. My folks aren't young.....and my in-laws are really struggling with health issues. It is "worth" quite a lot right now to be close to them, no matter the COL (I am in West Mitten-I think we're LCOL here). Sure, I wish I had had someone telling me to invest some $ back when I was younger.... but thankful I can work every day. Had a niece who worked in Chicago for a few years,. Decided she wouldn't ever be able to make any real gains, so she's back in Michigan. It's all relative. And it's all a gamble. Ask folks that bought a REALLY expensive house in Flint, MI just prior to the water crises there. That's REALLY LCOL now, but ain't nobody livin there gonna tell you it's great.
My 2 cents. Hope it makes sense.
Greg

"Do not judge your neighbor until you walk two moons in his moccasins."
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by bltn » Wed Oct 31, 2018 11:24 am

KlangFool wrote:
Wed Oct 31, 2018 9:08 am
OP,

When you asked the wrong question, you will never get the right answer.

FI has nothing to do with HCOL or LCOL. It has to do with the saving rate. If a person could save 1 year of expense every year, the person could FI quickly. This could be achieved in an HCOL or LCOL area as long as the person has the right amount of income in those areas.

So, are you saving 1 year of expense every year now?

KlangFool
That s the answer. Your income has to be significantly above your cost of living, no matter where you live. The optimal combination is to get a high paying job in a lcol area. Maybe work from home.
Saving 50% of your income is admirable , but tough. 1/3 of income saved would be great. 2 years to save one year of expenses.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by grokzilla » Wed Oct 31, 2018 11:24 am

bigtex wrote:
Wed Oct 31, 2018 7:03 am
Hello,

From a financial standpoint, or achieving financial independence, is it better to live in a HCOL or LCOL area? A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more. Just seems that going from HCOL during a working career to a LCOL can make a big difference.
Housing aside. This remains largely true assuming you can secure a HCOL salary in that HCOL area -- that's the most important aspect. But, your chances are pretty good.

HCOL areas are essentially just dense population centers, which means there are already more jobs available. Those jobs almost universally pay better than their LCOL counterparts and most importantly there are ALOT more of the high pay variety to be had.

The tougher part is then being able to transfer that HCOL income to a LCOL area later in your career. There are just fewer opportunities. But, it's helpful to know that the larger national or even global companies in LCOL areas must still compete with HCOL areas for staff, which means their compensation packages are essentially the same as those in HCOL areas. And, that's where the big win is if you can get the gig -- HCOL income in a LCOL area.

Best Case: HCOL income in LCOL area -- later in career during peak earning years. Even better if income was always high in LCOL area.
Good Case: HCOL income in HCOL area -- moving to LCOL area at or near retirement.
Decent Case: HCOL income in HCOL area -- living frugally...this can be pretty hard depending upon metro and family situation. Biggest savings would always come from the home and reasonably priced homes are universally far from the metro areas in HCOL zones.
Worst Case: LCOL income in HCOL area -- often the case in early careers...can be really tough.
Last edited by grokzilla on Wed Oct 31, 2018 11:40 am, edited 2 times in total.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by Clever_Username » Wed Oct 31, 2018 11:36 am

I imagine one advantage to HCOL vs LCOL is already mentioned, and that's the eventual move. I own a home in Southern California. I periodically look at house prices in the greater Phoenix area, where I plan to move when I retire. The equity in my home at the moment would make a very sizable down payment (or a sizable contribution to my portfolio, depending).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by KlangFool » Wed Oct 31, 2018 11:38 am

bigtex wrote:
Wed Oct 31, 2018 10:03 am
KlangFool wrote:
Wed Oct 31, 2018 9:08 am
OP,

When you asked the wrong question, you will never get the right answer.

FI has nothing to do with HCOL or LCOL. It has to do with the saving rate. If a person could save 1 year of expense every year, the person could FI quickly. This could be achieved in an HCOL or LCOL area as long as the person has the right amount of income in those areas.

So, are you saving 1 year of expense every year now?

KlangFool
No, I'm saving 50% of my annual expense every year though.
Then, you should increase your income and/or saving in order to reach your goal.

The grass is not necessarily greener in the HCOL area. There might be more opportunities but there are more cost and competition there too. Can you compete and earn significantly above average in order to compensate for the additional cost?

Stop comparing with others. Focus on what you "Can Do" instead. Start your own topic on how to improve your income and your saving.

KlangFool

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by TheOscarGuy » Wed Oct 31, 2018 11:40 am

Thegame14 wrote:
Wed Oct 31, 2018 10:20 am
TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.
Degenerative cases don't make a point. In similar vain I could come up with someone who earns 400K and saves 1% VS someone who earns 150K and saves 30% their entire lives. I objected to your statement 'It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement'.
I didn't say you are WRONG. I said what you stated wasn't necessarily true :happy

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by LiveSimple » Wed Oct 31, 2018 11:44 am

bigtex wrote:
Wed Oct 31, 2018 7:03 am
A relative just moved to Nashville area after spending his whole career in Southern California, and now it seems he can retire so comfortably in the lower cost of living area that Nashville is. He sold his paid for Southern California home and that alone was worth a million or more.
Sure, made a million $$$, how was the quality of life if the relative raised the family in a moderate cost of living area.
Having some play space for kids, some kitchen garden, some less traffic, etc...

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by AnonJohn » Wed Oct 31, 2018 11:57 am

I think HCOL is helpful, subject to the provisos in this thread. In addition to the ability to move at retirement, I always look at airline tickets. At good compensation in a HCOL, air travel for a family is not cheap, but affordable. For my brother, with medium compensation in a LCOL area, flying with his family is essentially cost prohibitive. I suppose this needn't matter to building wealth, but being able to fly to see family is a nice luxury / quality of life improvement.

A key question to me is whether you can control cost growth in a HCOL. If you can, and keep your income appropriate for the area, you do well. Housing is usually the key question there ...

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by megabad » Wed Oct 31, 2018 12:24 pm

Watty wrote:
Wed Oct 31, 2018 8:59 am
In moving around the country my impression is that for most jobs the regional salary differences are not anywhere near enough to cover the higher living expenses in the high cost of living areas.
+1. I can attest that this is the case in many industries. However, some industries really only have a presence in HCOL areas (Silicon Valley tech startups, Investment Banking, California Film industry, Big Law). These specialty industries are typically what drives costs in HCOL in my experience while everyone else is left less than compensated for the increase cost of living.

In short, I think the average person (outside of specialty industries like the above) would almost universally do better in some LCOL in the US rather than most HCOL areas. This is both in retirement and prior to.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by golfCaddy » Wed Oct 31, 2018 3:45 pm

quantAndHold wrote:
Wed Oct 31, 2018 7:13 am
It’s more important to live where your income is greater than your expenses. Depending on your job, that might be HCOL or LCOL. Many LCOL areas are LCOL because they don’t have many high paying jobs. And a HCOL location isn’t going to help you much if you don’t have the right skills to get a high paying job there.

More important for your relative was getting lucky in the California housing market. Something that is not a given.
+1000000

As a federal government employee, moving from a LCOL area to NYC might give me a 10% raise. I'm obviously better off staying in the LCOL area. If I had the skills to get hired at a tech company in SV or in finance in NYC, I would be crazy to stay where I am. The higher income would more than offset the increased costs of rent. You might be able to find a high paying finance job in Chicago or a good tech job in Seattle or Boston, but you still need to move to one of the hubs for those high-paying jobs.
Last edited by golfCaddy on Wed Oct 31, 2018 3:52 pm, edited 1 time in total.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by dm200 » Wed Oct 31, 2018 3:47 pm

DW and I live in HCOL area, but our costs are more moderate - since we live in the same house we bought 40+ years ago AND we can live modestly.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by HomerJ » Wed Oct 31, 2018 4:42 pm

dm200 wrote:
Wed Oct 31, 2018 3:47 pm
DW and I live in HCOL area, but our costs are more moderate - since we live in the same house we bought 40+ years ago AND we can live modestly.
Yes, but you'd absolutely be far richer (financially) if you sold that house (which has appreciated a TON I'm guessing), and moved to LCOL area.
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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by ClevrChico » Wed Oct 31, 2018 5:14 pm

From browsing various FIRE forums, the typical tech worker in a HCOL area accumulates money faster than a LCOL one. Some of the savings and compensation numbers they post seem untouchable in a LCOL area.

Quality of life is probably higher in the LCOL area in terms of housing, commutes, schools, etc. And in the end, it's not a race.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by dm200 » Wed Oct 31, 2018 5:19 pm

HomerJ wrote:
Wed Oct 31, 2018 4:42 pm
dm200 wrote:
Wed Oct 31, 2018 3:47 pm
DW and I live in HCOL area, but our costs are more moderate - since we live in the same house we bought 40+ years ago AND we can live modestly.
Yes, but you'd absolutely be far richer (financially) if you sold that house (which has appreciated a TON I'm guessing), and moved to LCOL area.
Maybe. A long term acquaintance sold her house here as a "teardown" - and bought a nice house in a lower real estate cost city for less than half of what she sold for here.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by sawhorse » Wed Oct 31, 2018 5:32 pm

Thegame14 wrote:
Wed Oct 31, 2018 10:20 am
TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.
First of all, I am not aware of a single job that is $30k in a low cost area and $300k in a high cost area. At most it might be 2-3 times. But the cost of living, including real estate, is far more than 2-3 times.

Second, in this thread there has been a lot of talk about home equity. In a high cost area, you could easily be renting forever because you are never able to save enough money for a down payment. My husband and I have spent well over $100k on rent the last few years. There is no money left to save for a down payment. A 20% down payment here would be about $200k.

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by EddyB » Wed Oct 31, 2018 5:50 pm

sawhorse wrote:
Wed Oct 31, 2018 5:32 pm
Thegame14 wrote:
Wed Oct 31, 2018 10:20 am
TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.
First of all, I am not aware of a single job that is $30k in a low cost area and $300k in a high cost area. At most it might be 2-3 times. But the cost of living, including real estate, is far more than 2-3 times.
Using the first "cost of living calculator" that came up when I searched, I have not found a locality that is less than 1/3 the cost of living of Manhattan (NY, not KS), which I quickly chose as probably the most expensive place in the U.S. Do you mean to include the whole world?

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Re: Is it more advantageous to live in HCOL or LCOL area in terms of financial independence?

Post by sawhorse » Wed Oct 31, 2018 6:00 pm

EddyB wrote:
Wed Oct 31, 2018 5:50 pm
sawhorse wrote:
Wed Oct 31, 2018 5:32 pm
Thegame14 wrote:
Wed Oct 31, 2018 10:20 am
TheOscarGuy wrote:
Wed Oct 31, 2018 10:07 am
Thegame14 wrote:
Wed Oct 31, 2018 9:53 am
It would always make more sense to live in a HCOL area if your salary is also higher, because you can always move to a LCOL area in retirement, you cant always move to a higher paying job from a LCOL area.
Its not necessarily true. Someone who is frugal, saving 70% of their salary could be a decamillionaire while working in LOCL area and then decide to move to HCOL.
What matters more is what % of your income you can save.
This is WRONG!! If person A makes $300,000 a year and saves 20% of their salary and lives in HCOL, Person B makes 30K a year, and saves 30% of their salary and lives in LCOL, person A is saving/investing $60K per year, plus probably using the rest of their salary to gain home equity, Person B is sayvin/investing $9K per year, while probably gaining some but not as much home equity as person A. So person A is saving a LOWER % of their Salary, but saving/investing much more money, plus probably building fast and more home equity and then both can move whenever they want and bring those assets with them, but Person A will certainly have more assets to move.
First of all, I am not aware of a single job that is $30k in a low cost area and $300k in a high cost area. At most it might be 2-3 times. But the cost of living, including real estate, is far more than 2-3 times.
Using the first "cost of living calculator" that came up when I searched, I have not found a locality that is less than 1/3 the cost of living of Manhattan (NY, not KS), which I quickly chose as probably the most expensive place in the U.S. Do you mean to include the whole world?
I don't know what site you're using, but this one breaks it down. Housing is usually the number 1 expense for people. Certainly it's the number 1 expense in NYC. There are places in this calculator in which housing is more than 80% less than Manhattan. In Tupelo, MS housing is 86% less. It's even cheaper in smaller more remote towns in MS. In Birmingham, AL, a majorish city, housing is 83% less. In Atlanta, a major city, housing is 81% less.

On average people spend 2/3 of their salary on rent in NYC. Imagine what an 86% decrease in rent could do to their savings rate.

https://money.cnn.com/calculator/pf/cos ... index.html

Child care is another enormous expense. The variation in child care costs between low and high are more than 5x when you look at state averages. Within each state there are higher and lower cost areas, so the difference between the highest and lowest localities is greater than 5x.

https://www.bostonglobe.com/2014/07/02/ ... story.html

People are usually in the accumulation phase, perhaps early in the accumulation phase, when they need child care. Imagine how spending 80% less on child care can help your savings rate and the impact that can have after decades of growth.
Last edited by sawhorse on Wed Oct 31, 2018 6:42 pm, edited 1 time in total.

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