Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

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bigtex
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Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by bigtex » Thu Jul 18, 2019 6:18 am

Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by mervinj7 » Thu Jul 18, 2019 6:24 am

Here's the data for income percentile by city. Play around with it and see what you find out.

https://dqydj.com/income-percentile-by-city-calculator/

And here's net worth by state.
https://www.census.gov/content/dam/Cens ... wealth.pdf

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simplesimon » Thu Jul 18, 2019 6:43 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Probably, but you'll need to compare the numbers for yourself like how much you're willing to spend and what jobs pay.

There are certainly ways to live cheaply in HCOL areas, they're just not comparable to a LCOL area. It may cost the same having a number of roommates in HCOL vs having your own apartment in LCOL.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by TheOscarGuy » Thu Jul 18, 2019 6:44 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
It depends on individual. If your expenses are << your income, you will have higher savings, and hence net worth as you work. I know plenty of folks in Silicon valley that are spend everything they earn, and count on their house being their retirement. They may be right if house prices keep going up, but it is a risk.
Just because it works for average worker, does not mean it will for you. You have to look at your expenses and what you can get in compensation over there in HCOL compared to where you currently are.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by eob616 » Thu Jul 18, 2019 7:07 am

My experience: when I was living in a LCOL area, I was able to buy a house on a lower income and build equity that way, but it wasn't possible to max out retirement accounts--I could save about 10% into my work account and do a full Roth IRA contribution every year, and that was it. In a HCOL area, homeownership seems hard to swing, so I rent, but I can easily max out my 401k and contribute additional to taxable each month. I was building wealth in each place, but in different ways.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by KlangFool » Thu Jul 18, 2019 7:15 am

OP,

People with a higher saving rate has higher net worth and higher opportunity to grow wealth. This is true i dependent of where they live.

KlangFool

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by randomguy » Thu Jul 18, 2019 7:30 am

KlangFool wrote:
Thu Jul 18, 2019 7:15 am
OP,

People with a higher saving rate has higher net worth and higher opportunity to grow wealth. This is true i dependent of where they live.

KlangFool
Lets compare
Person A lives in HCOL
a) Makes 100k, saves 15% = 15k year

Person b lives in LCOL area
b) makes 70k and saves 20% = 14k/year

Person A has a lower savings rate and will create more wealth. The problem comes when they retire that they either need more wealth or have to move. But person A will be able to retire in a LCOL area before person B despite the much lower savings rate. Absolute amounts matter.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simas » Thu Jul 18, 2019 7:31 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes
HCOL do not _provide_ higher income, instead such locations may have opportunity for jobs/income that does not exist in other locales. example - a teacher in San Francisco is not making 10X of a teacher in Des Moines, IA (the difference is 20-40% according to salary.com) however San Francisco has access to opportunities like investment banking that simply do not exists in Des Moines.

if you earn very high income , ANYWHERE => more net worth and more wealth building potential. A doctor being paid doctor wages in rural area will build wealth much faster than doctor with same wages in NYC.

if you earn average income (government, teaching, etc) , ANYWHERE => LCOL may be much more beneficial for you. Be paid on the same scale as others while having your costs a very small fraction of HCOL. A teacher in rural Missouri paid 50k a year (which is a price of the house) is much better off than teacher paid 70k in San Francisco

So this is all about income and not LCOL vs HCOL

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by KlangFool » Thu Jul 18, 2019 7:41 am

randomguy wrote:
Thu Jul 18, 2019 7:30 am
KlangFool wrote:
Thu Jul 18, 2019 7:15 am
OP,

People with a higher saving rate has higher net worth and higher opportunity to grow wealth. This is true i dependent of where they live.

KlangFool
Lets compare
Person A lives in HCOL
a) Makes 100k, saves 15% = 15k year

Person b lives in LCOL area
b) makes 70k and saves 20% = 14k/year

Person A has a lower savings rate and will create more wealth. The problem comes when they retire that they either need more wealth or have to move. But person A will be able to retire in a LCOL area before person B despite the much lower savings rate. Absolute amounts matter.
randomguy,

1) My saving rate is based on annual expense. It is not based on income.

2) My definition of wealth is based on FI.

KlangFool

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simplesimon » Thu Jul 18, 2019 8:01 am

KlangFool wrote:
Thu Jul 18, 2019 7:41 am
2) My definition of wealth is based on FI.
I think this is a good point often overlooked. If the goal is to retire at the same standard as one lives then it's probably a wash assuming similar savings rates etc (I haven't actually run any numbers). If the goal is to have the most dollar amount possible in the end, then HCOL will provide you a better chance of doing that.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simas » Thu Jul 18, 2019 8:02 am

and one more thing on this - in the world in which see emergence of "location-free" companies (where offices are limited or 100% virtual) it is about being to do the role and being good at it (as your competition , you know, is also global).

here is an example - GitLab
https://about.gitlab.com/company/culture/all-remote/

they are up front on how the work, what they pay , how the culture works, expectations, etc.
here is the comp calculator

https://about.gitlab.com/handbook/peopl ... alculator/
for the same role, same experience level, the difference between Wisconsin and say LA is <25%. if you have your family and friends near by, and want to do the roles like this, why would you ever move to HCOLs? Because paying 4x in rent while working the same job will somehow give you "more wealth building potential"??

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Raryn » Thu Jul 18, 2019 8:11 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
I would quibble with this a little bit. HCOL *may* provide higher income depending on your profession, but this is not necessarily the case.

As an easy example, for physicians, HCOL areas usually provide *lower* income than you could get in LCOL areas. For many specialties, the absolute lowest physician incomes are in big cities like NYC, San Francisco, etc - the highest physician incomes are in areas like small towns in Texas or hospitals in the middle of Wyoming. Because they have to recruit from a reasonably small pool of highly trained individuals, these places can really only compete on pay - I'd increase my take home by 40-50% if I moved 100 miles out from San Antonio as compared to living in an urban setting currently.

In a case like this, living in a HCOL is a double whammy - you make less money and you spend more, so your savings rate must be lower.

In a more typical case, it's going to depend on the salary differential. Teachers for example might make slightly more in the SF Bay Area (maybe 20% more than the state average) - but from what I understand it is not enough to offset the extreme difference in living expenses, and their overall discretionary might be lower than if they lived in central CA (which is much cheaper). Tech employees on the other hand might make 3-5x differential working for a big firm in the Bay compared to somewhere else - their discretionary income is a lot different even after taking into account the high expense.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by KlangFool » Thu Jul 18, 2019 8:21 am

simas wrote:
Thu Jul 18, 2019 8:02 am
and one more thing on this - in the world in which see emergence of "location-free" companies (where offices are limited or 100% virtual) it is about being to do the role and being good at it (as your competition , you know, is also global).
simas,

1) I am a network architect. I work from home and I can live anywhere in the US East Coast with a major airport. I design wireless networks for location worldwide.

2) Members of my team spread all over the USA. One of my peers move from NY to Florida and keeping the same job. It is not a big deal. It is part of the job description.

3) I telecommuted for my US job from Asia.

KlangFool

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by a_movable_life » Thu Jul 18, 2019 8:31 am

It depends on your job. There are many jobs in HCOL areas that pay poorly or don't have higher rates for being in the big city.

If you have housemates, or live in a not as "Nice" neighborhood you can leverage a job that pays better in a HCOL area.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by ohai » Thu Jul 18, 2019 8:34 am

OP, you are asking about populations in general, or for the same worker with the same skills?

If you are asking about the populations in general, then yes, HCOL areas will have higher net worths. First, there are more people in highly paid professions (lawyer, bankers, etc.) in expensive areas. Second, there are more people in expensive areas who are skewed towards the upside. If you are a billionaire startup owner or hedge fund manager, you're likely to be in a coastal, expensive city. These areas are expensive because people can pay for stuff, and more.

If I move from NYC to a low cost area, my savings rate will decline. I will save $X a year in cost but lose $5*X a year in income.

If you are asking about people in geography-agnostic professions, like teachers, firefighters, and so on... it seems advantageous to be in a cheaper area. However, in general, I think the net worth will be similar, simply because most Americans save only the minimum amount for their retirement plans, or sometimes less than that.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simas » Thu Jul 18, 2019 8:34 am

KlangFool wrote:
Thu Jul 18, 2019 8:21 am
simas wrote:
Thu Jul 18, 2019 8:02 am
and one more thing on this - in the world in which see emergence of "location-free" companies (where offices are limited or 100% virtual) it is about being to do the role and being good at it (as your competition , you know, is also global).
simas,

1) I am a network architect. I work from home and I can live anywhere in the US East Coast with a major airport. I design wireless networks for location worldwide.

2) Members of my team spread all over the USA. One of my peers move from NY to Florida and keeping the same job. It is not a big deal. It is part of the job description.

3) I telecommuted for my US job from Asia.

KlangFool
exactly. if my tech partners are in Austin and Phoenix, and my team is spread from Carolinas to California, business stakeholders in Denver, and top leadership in San Francisco (with systems spread from Raleigh, to Ohio, to Chicago, to Arizona, Colorado, etc) - does it matter where I physically work from?

I do not buy the HCOL vs LCOL - to be it is generic enough to be meaningless and straight up BS. Specifics matter. your role matter. be good in what you do, be better, and pick where you want to live (HCOL /LCOL, etc). everything else will come along

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by randomguy » Thu Jul 18, 2019 8:44 am

KlangFool wrote:
Thu Jul 18, 2019 7:41 am
randomguy wrote:
Thu Jul 18, 2019 7:30 am
KlangFool wrote:
Thu Jul 18, 2019 7:15 am
OP,

People with a higher saving rate has higher net worth and higher opportunity to grow wealth. This is true i dependent of where they live.

KlangFool
Lets compare
Person A lives in HCOL
a) Makes 100k, saves 15% = 15k year

Person b lives in LCOL area
b) makes 70k and saves 20% = 14k/year

Person A has a lower savings rate and will create more wealth. The problem comes when they retire that they either need more wealth or have to move. But person A will be able to retire in a LCOL area before person B despite the much lower savings rate. Absolute amounts matter.
randomguy,

1) My saving rate is based on annual expense. It is not based on income.

2) My definition of wealth is based on FI.

KlangFool
1) doesn't change anything.
2) a still gets to FI quicker. He just has to move

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by il0kin » Thu Jul 18, 2019 8:45 am

There’s a middle ground... MCOL!

Look at Midwest/Southern cities with 1-3M people. Lots of major companies with HQs in these cities (think Berkshire Hathaway and its many subsidiaries in Omaha). Plenty of 70k+ jobs, houses in good areas are in the 200k range. A dual income family can have a very nice standard of living in these areas as they have many of the benefits of both HCOL and LCOL areas.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by knowledge » Thu Jul 18, 2019 8:48 am

The specifics do matter. If your consumption is location specific, then you should be able to save more in a lower COL area. If your consumption is primarily location agnostic (vacations internationally, private colleges, high end cars) then you're competing nationally and you won't save anywhere except for housing.

But just like there are ways to live in LCOL areas and spend a lot, there are ways to live in HCOL and spend less.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by fallingeggs » Thu Jul 18, 2019 8:51 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
All else equal, such as one's proclivity to save, yes, I believe HCOL areas provides more opportunities to generate wealth then LCOL areas. I think it is a fact that if you could be successful as an investment banker in NYC (or an engineer at a FAANG in SF/Seattle), but you live and work in Nebraska, you will not be maximizing your wealth potential.

But that's not the question you should be asking, as others have pointed out. HCOL areas are high costs because there are a lot of high income jobs, but will you be getting one of these high income jobs? In NYC, that's finance (or law, accounting, marketing, fashion) or working high up at the headquarters of a Fortune 500 based there. Each HCOL area has what they excel at and what drives the costs and income. If you aren't in one of these fields, it will be difficult. (Or if you live and work in an area like Miami, where the costs are driven by rich retired folk and foreigners rather than having high paying jobs.)

You can build wealth anywhere (within reason), so don't be dissuaded and be happy living where you are now.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by livesoft » Thu Jul 18, 2019 8:52 am

I moved from a HCOL to LCOL area and my net worth ballooned because I got paid lots more and my expenses went way down. I also discovered that a lot of people around me own oil and gas properties.

I don't think one can make any general statements on the OP's query.
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by DesertDiva » Thu Jul 18, 2019 8:57 am

knowledge wrote:
Thu Jul 18, 2019 8:48 am
The specifics do matter. If your consumption is location specific, then you should be able to save more in a lower COL area. If your consumption is primarily location agnostic (vacations internationally, private colleges, high end cars) then you're competing nationally and you won't save anywhere except for housing.

But just like there are ways to live in LCOL areas and spend a lot, there are ways to live in HCOL and spend less.
Yes, lifestyle is a major determinant. Read Thomas Stanley.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Nowizard » Thu Jul 18, 2019 9:00 am

Stats are possibly in need of nuance for proper interpretation. One reason for an area being HCOL and higher salary is because of higher taxes, fees, etc. We live in a LCOL area with no state income tax, no inheritance tax, low property taxes, etc. Our pre-retirement, combined incomes were moderate and less than many individual incomes of posters here. However, saving and consistent investment produced net worth that would qualify as wealth by many definitions. It is not what you make but what you keep and grow that determines net worth.

Tim

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by RollTide31457 » Thu Jul 18, 2019 9:14 am

Incorrect. High quality of life areas (south and Midwest) are optimal for wealth building.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by CoastalWinds » Thu Jul 18, 2019 9:16 am

eob616 wrote:
Thu Jul 18, 2019 7:07 am
My experience: when I was living in a LCOL area, I was able to buy a house on a lower income and build equity that way, but it wasn't possible to max out retirement accounts--I could save about 10% into my work account and do a full Roth IRA contribution every year, and that was it. In a HCOL area, homeownership seems hard to swing, so I rent, but I can easily max out my 401k and contribute additional to taxable each month. I was building wealth in each place, but in different ways.
+1

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by 22twain » Thu Jul 18, 2019 9:54 am

Returning to the OP:
bigtex wrote:
Thu Jul 18, 2019 6:18 am
I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Many of the replies have focused on the high-earning (or at least high-potential) careers that are available in HCOL areas.

So, what kind of job/career do you have? I'm too lazy to trawl through your 200+ previous posts to dig it out for myself. :wink:

Is is the kind that can earn a lot more in HCOL areas, enough more to cover the increased cost of living and allow you to save more on top of that, or is it a more run-of-the-mill sort of career?
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Sandtrap » Thu Jul 18, 2019 10:11 am

(irrespective of "net worth")

IMHO: There is a far greater "wealth building potential" (WBP?) in a HCOL or UHCOL area than a LCOL area.
A bad example would be, all things considered, there are greater opportunities to build substantial wealth over time in wealthy Scottsdale, Arizona than Skull Valley, Arizona. Or, San Francisco, California vs a small town of 10,000 in New Mexico. And so forth.

Of course this is business and profession/career dependent. There are exceptions, always are.
But, generally, the areas with the most and biggest and most fruitful fruit trees, have the most fruit to accumulate if one is an ambitious fruit harvester.

*disclaimer : the above is oriented toward a "business" point of view and the accumulation of "substantial wealth".

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by willthrill81 » Thu Jul 18, 2019 10:26 am

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
In my state, Washington, some of the economics professors from Eastern Washington University did a comparison of Seattle and Spokane, the second largest city in the state and on the opposite side of the state. They found that while residents of Seattle do earn significantly more, the additional earnings are not sufficient to overcome the higher COL, which is mainly driven by much more expensive real estate. I'm not sure if they took into account that the federal tax burden is also higher for higher earners due to our graduated tax system.

I'll say this much potentially in favor of HCOL areas: it's usually far easier to retire from a HCOL to a LCOL area than to do the opposite.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by HEDGEFUNDIE » Thu Jul 18, 2019 11:53 am

Real numbers from my experience:

VHCOL area (SF)
Family income: $500k
Income taxes: $120k
Housing: $85k
Childcare: $25k
$270k remaining for savings & spending

MCOL area (Chicago)
Family income: $300k
...don't think I need to do any more math here.

Our jobs do not exist in LCOL.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by willthrill81 » Thu Jul 18, 2019 11:59 am

HEDGEFUNDIE wrote:
Thu Jul 18, 2019 11:53 am
Real numbers from my experience:

VHCOL area (SF)
Family income: $500k
Income taxes: $120k
Housing: $85k
Childcare: $25k
$270k remaining for savings & spending

MCOL area (Chicago)
Family income: $300k
...don't think I need to do any more math here.

Our jobs do not exist in LCOL.
The income tax calculator at SmartAsset estimates that a MFJ couple in CA earning $500k would pay a total of $176k in federal and state taxes. Obviously, contributions to tax-deferred accounts would help with that, but it's still a lot higher than $120k.

That being said, I agree that you have to go where the jobs are.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Watty » Thu Jul 18, 2019 1:36 pm

As others have said it really depends on the details of your situation.

For example I live in Atlanta which is more of a medium cost of living area and we have some friends that have a son who is severely dyslexic and barely graduated high school. At one point he was working in a chain muffler shop which is a good honest job but I am sure that it did not pay a lot. Even with his income though he was able to save up and buy a small older house in marginal but not terrible area.

In a high cost of living area he would have hard a hard time even affording an apartment working a job like that.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by fourkids » Thu Jul 18, 2019 1:48 pm

Yes...
but only if you don't succumb to the higher level lifestyle and spending of your neighbors in the HCOL area. Expensive houses, cars, vacations, kids activities, outings, etc. are all extremely commonplace in HCOL areas, so you have to willfully buck the trend, otherwise your savings rate can fall low and you can start to feel "stretched" even though you are making $300k+/year. Seriously, most of my very well-off friends/neighbors feel/talk like they are middle class.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by HEDGEFUNDIE » Thu Jul 18, 2019 1:50 pm

willthrill81 wrote:
Thu Jul 18, 2019 11:59 am
HEDGEFUNDIE wrote:
Thu Jul 18, 2019 11:53 am
Real numbers from my experience:

VHCOL area (SF)
Family income: $500k
Income taxes: $120k
Housing: $85k
Childcare: $25k
$270k remaining for savings & spending

MCOL area (Chicago)
Family income: $300k
...don't think I need to do any more math here.

Our jobs do not exist in LCOL.
The income tax calculator at SmartAsset estimates that a MFJ couple in CA earning $500k would pay a total of $176k in federal and state taxes. Obviously, contributions to tax-deferred accounts would help with that, but it's still a lot higher than $120k.

That being said, I agree that you have to go where the jobs are.
I stand corrected, for me it's 140k in taxes.

500k income
- 60k 401k contributions and company match
- 7k HSA
- 5k dependent care FSA
- 2k limited purpose FSA
- 6k pre-tax parking & transit
- 10k SALT
- 20k mortgage interest
- 10k charity
= 380k taxable income

Federal tax: 85k
CA tax: 29k
Payroll tax: 26k
Last edited by HEDGEFUNDIE on Thu Jul 18, 2019 3:47 pm, edited 3 times in total.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by snackdog » Thu Jul 18, 2019 1:53 pm

HCOL areas tend to be HCOL areas because the people living there are building more wealth than LCOL areas. So the answer is yes.

People living in HCOL cities tend to have higher home equity (faster appreciation) and higher income and thus higher net worth.

There are more opportunities in New York City (NY) than there are in Corning (NY). There are more ways to get rich in NYC and higher likelihood one of those will intersect the skills of the average person. In Corning I guess unless you are into making glass or something you are pretty much SOL for a job with any potential.

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bigtex
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by bigtex » Thu Jul 18, 2019 2:04 pm

22twain wrote:
Thu Jul 18, 2019 9:54 am
Returning to the OP:
bigtex wrote:
Thu Jul 18, 2019 6:18 am
I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Many of the replies have focused on the high-earning (or at least high-potential) careers that are available in HCOL areas.

So, what kind of job/career do you have? I'm too lazy to trawl through your 200+ previous posts to dig it out for myself. :wink:

Is is the kind that can earn a lot more in HCOL areas, enough more to cover the increased cost of living and allow you to save more on top of that, or is it a more run-of-the-mill sort of career?

My career is accounting, specifically healthcare finance. Would accounting jobs pay more in these HCOL areas or am I in a run-of-the-mill sort of career?

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by goodenyou » Thu Jul 18, 2019 2:09 pm

The question is do people with higher incomes and savings rates have more wealth building potential.

Geoarbitrage can be very powerful. Especially for physicians that practice in "Sportsman's Paradises" (aka undesirable places to live). Not only is there lower cost of living, but there is more volume (greater opportunity to work harder) and more entrepreneurial opportunity to participate in the many facets of the healthcare economy (hospitals, surgery centers, imaging etc.). Growth LCOL areas are especially lucrative.
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by StealthRabbit » Thu Jul 18, 2019 2:18 pm

depends on how people spend and save (accumulate wealth)

Since I do a lot of Real Estate in my free time (not career)...

A HCOL region (no income tax state) served me well during wealth building yrs.
Really worked sweet for several friends who did the $500k tax free gains of Pers Residence every 24 months. (Gotta be very smart / prudent buyer to get the full $500k in 24 months, but very EZ if you build them yourself on view lots!)

Best to seek a different scenario in my 50 + yrs of retirement. (property taxes are now too high)

Being careful NOT to torpedo my wealth / assets. (Ie. my retirement spreadsheet quickly illustrated the fallacy of investing in a low housing market that has potential to sink.) If I was forced to relocate (medical / health / family), and could not sell my home / local RE investments for 10 yrs... life got a little sparse.
Last edited by StealthRabbit on Thu Jul 18, 2019 2:21 pm, edited 1 time in total.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simplesimon » Thu Jul 18, 2019 2:20 pm

bigtex wrote:
Thu Jul 18, 2019 2:04 pm
22twain wrote:
Thu Jul 18, 2019 9:54 am
Returning to the OP:
bigtex wrote:
Thu Jul 18, 2019 6:18 am
I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Many of the replies have focused on the high-earning (or at least high-potential) careers that are available in HCOL areas.

So, what kind of job/career do you have? I'm too lazy to trawl through your 200+ previous posts to dig it out for myself. :wink:

Is is the kind that can earn a lot more in HCOL areas, enough more to cover the increased cost of living and allow you to save more on top of that, or is it a more run-of-the-mill sort of career?

My career is accounting, specifically healthcare finance. Would accounting jobs pay more in these HCOL areas or am I in a run-of-the-mill sort of career?
Are we talking more like hospital or publicly traded pharmaceutical company?

There are many pharma companies where I live (Boston) and I know some have very nice stock option benefits.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by bigtex » Thu Jul 18, 2019 2:25 pm

simplesimon wrote:
Thu Jul 18, 2019 2:20 pm
bigtex wrote:
Thu Jul 18, 2019 2:04 pm
22twain wrote:
Thu Jul 18, 2019 9:54 am
Returning to the OP:
bigtex wrote:
Thu Jul 18, 2019 6:18 am
I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Many of the replies have focused on the high-earning (or at least high-potential) careers that are available in HCOL areas.

So, what kind of job/career do you have? I'm too lazy to trawl through your 200+ previous posts to dig it out for myself. :wink:

Is is the kind that can earn a lot more in HCOL areas, enough more to cover the increased cost of living and allow you to save more on top of that, or is it a more run-of-the-mill sort of career?

My career is accounting, specifically healthcare finance. Would accounting jobs pay more in these HCOL areas or am I in a run-of-the-mill sort of career?
Are we talking more like hospital or publicly traded pharmaceutical company?

There are many pharma companies where I live (Boston) and I know some have very nice stock option benefits.
Talking hospital finance / administration.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by simplesimon » Thu Jul 18, 2019 2:30 pm

bigtex wrote:
Thu Jul 18, 2019 2:25 pm
simplesimon wrote:
Thu Jul 18, 2019 2:20 pm
bigtex wrote:
Thu Jul 18, 2019 2:04 pm
22twain wrote:
Thu Jul 18, 2019 9:54 am
Returning to the OP:
bigtex wrote:
Thu Jul 18, 2019 6:18 am
I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
Many of the replies have focused on the high-earning (or at least high-potential) careers that are available in HCOL areas.

So, what kind of job/career do you have? I'm too lazy to trawl through your 200+ previous posts to dig it out for myself. :wink:

Is is the kind that can earn a lot more in HCOL areas, enough more to cover the increased cost of living and allow you to save more on top of that, or is it a more run-of-the-mill sort of career?

My career is accounting, specifically healthcare finance. Would accounting jobs pay more in these HCOL areas or am I in a run-of-the-mill sort of career?
Are we talking more like hospital or publicly traded pharmaceutical company?

There are many pharma companies where I live (Boston) and I know some have very nice stock option benefits.
Talking hospital finance / administration.
I don't know the salaries but I imagine the upside's more limited given that hospitals in general are having a tough time financially.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by gunn_show » Thu Jul 18, 2019 4:39 pm

simas wrote:
Thu Jul 18, 2019 8:34 am

I do not buy the HCOL vs LCOL - to be it is generic enough to be meaningless and straight up BS. Specifics matter. your role matter. be good in what you do, be better, and pick where you want to live (HCOL /LCOL, etc). everything else will come along
Agree, specifics matter, role matters. For what I do, yes absolutely being in HCOL/MCOL enables me to get a better job consistently, earn more, save more, while my costs don't really rise because I bought my house and built equity over time. So over the years my bottom line is generally stable, but my top line (income) has grown a lot. But this is truly YMMV. Having the right role in the right place + being good/great at what you do, can definitely accelerate net worth and wealth building potential. Lot more specifics than just HCOL vs LCOL as simas mentions.
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Ferdinand2014 » Thu Jul 18, 2019 4:47 pm

bigtex wrote:
Thu Jul 18, 2019 6:18 am
Obviously HCOL areas provide higher incomes, but do they also provide higher net worths and more wealth building potential or is it essentially equal to LCOL areas in terms of net worth and wealth building due to the lower expenses in LCOL areas? I am trying to determine if I could be achieving more financially if I moved to a larger city which would also mean HCOL most likely. I love in a small / mid size area now approx 300k people and not much population growth. Stable housing prices and population not declining nor booming.
It’s likely an individual issue. This type of reasoning can’t be sorted to the individual level. I live in a very LCOL area. Average home price is under $100,000. Rural area. I am a physician and actually in my field of specialty make almost 2.5X the national average income as I work in an underserved high need area. I am lucky in that I also happen to love where I live independent of income. I am very sure my situation is very uncommon. Another hidden benefit of a LCOL is less pressure to act the part. Don’t underestimate this pressure. I drive an F150. I live in a very nice, tidy, average house in an average neighborhood. Stealthy wealth is the way to go. Like the book ‘The Millionaire Next Door’. Great book by the way. They talk about how one of the worst things you can do to not become wealthy (statistically speaking) is to live in an affluent neighborhood.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by randomguy » Thu Jul 18, 2019 5:01 pm

Ferdinand2014 wrote:
Thu Jul 18, 2019 4:47 pm
I drive an F150.
So you drive a 50k truck,😀. Ok I have no clue what trim you have but I bet every single one of your neighbors can put a very good guess about what your car is worth. They all know that f150 go from beater transportation to Mercedes benze luxury level and it is car they have pretty much all shopped for, they know what one goes for.

And as soon as you say the word physican, stealth wealth is no longer an option. Heck most probably over estimate your income

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by SQRT » Thu Jul 18, 2019 5:28 pm

I vote for HCL. Worked quite well for me.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by EddyB » Thu Jul 18, 2019 6:16 pm

simplesimon wrote:
Thu Jul 18, 2019 8:01 am
KlangFool wrote:
Thu Jul 18, 2019 7:41 am
2) My definition of wealth is based on FI.
I think this is a good point often overlooked. If the goal is to retire at the same standard as one lives then it's probably a wash assuming similar savings rates etc (I haven't actually run any numbers). If the goal is to have the most dollar amount possible in the end, then HCOL will provide you a better chance of doing that.
I don’t see how it can be considered a “wash” if the HCOL saver has more options to move than the LCOl saver has.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Sandtrap » Thu Jul 18, 2019 6:33 pm

goodenyou wrote:
Thu Jul 18, 2019 2:09 pm
The question is do people with higher incomes and savings rates have more wealth building potential.

Geoarbitrage can be very powerful. Especially for physicians that practice in "Sportsman's Paradises" (aka undesirable places to live). Not only is there lower cost of living, but there is more volume (greater opportunity to work harder) and more entrepreneurial opportunity to participate in the many facets of the healthcare economy (hospitals, surgery centers, imaging etc.). Growth LCOL areas are especially lucrative.
Outstanding point and great examples.
It reinforces the idea that wealth potential has so much to do with "what" you do, as well as "where you do it".

Good post.
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by goodenyou » Thu Jul 18, 2019 6:58 pm

SQRT wrote:
Thu Jul 18, 2019 5:28 pm
I vote for HCL. Worked quite well for me.
My experience is just the opposite. I moved to a LCOL area from a HCOL area where I am (now) considered “wealthy”. In a HCOL area I would be average to above average. However, in a LCOL area I have witnessed wealth and wealth accumulation beyond my wildest dreams. Several with high 9 and 10-Figure wealth. Invited (me) to sitting President luncheon fundraiser at their house wealth. Private jet ownership wealth and Crazy Rich International Person wealth. I am sure that Silicon Valley is teeming with people like that, but I wouldn’t be anywhere near a zip code or 3 from them. Being a big fish among whales in a small pond has its advantages.
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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by WS1 » Thu Jul 18, 2019 8:01 pm

Sure, but that’s not why you should move to an expensive city.
It’s career opportunities that only exist in HCOL
It’s amenities that only exist in HCOL
It’s family in HCOL

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by LilyFleur » Thu Jul 18, 2019 8:13 pm

fourkids wrote:
Thu Jul 18, 2019 1:48 pm
Yes...
but only if you don't succumb to the higher level lifestyle and spending of your neighbors in the HCOL area. Expensive houses, cars, vacations, kids activities, outings, etc. are all extremely commonplace in HCOL areas, so you have to willfully buck the trend, otherwise your savings rate can fall low and you can start to feel "stretched" even though you are making $300k+/year. Seriously, most of my very well-off friends/neighbors feel/talk like they are middle class.
Not necessarily. I live in a very HCOL area. My neighbor the trust-fund baby does have expensive cars and vacations, but most of my other acquaintances do not. HCOL areas also have middle-class populations who live rather frugally. It's easy to notice the folks who have more than you and forget to notice your neighbor who drives an ancient Toyota and is saving for retirement.

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Re: Do people in HCOL areas have a higher net worth and more wealth building potential than LCOL?

Post by Watty » Thu Jul 18, 2019 8:25 pm

goodenyou wrote:
Thu Jul 18, 2019 6:58 pm
However, in a LCOL area I have witnessed wealth and wealth accumulation beyond my wildest dreams.
Wealth is also different in a LCOL rural area.

Even a medium size farm is a multi-million dollar business.

Think about that the next time you are flying over "flyover" country and see all those funny looking circles and squares as far as you can see.

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