Price differences are common throughout the U.S., where cities like San Francisco and New York cost way more than the national average. In fact, the total cost of living in San Francisco is 62.6 percent higher than the rest of the country.
If you’re looking to save money, moving to a cheaper place could be one of the best financial decisions. Find out how moving to a more affordable city could have a huge effect on your budget.
1. Moving could lower your cost of living
The cost of living between different states and cities in the U.S. varies tremendously. Cost of living refers to how much you spend each month on expenses such as rent, groceries, transportation, and taxes.
The Council for Community and Economic Research crunched the data with its Cost of Living Index (COLI). It found that New York City, Honolulu, and San Francisco have the highest cost of living in the U.S. The average price of a home in Manhattan, for instance, is $1.36 million. And a trip to the salon will set you back $68.
Compare these stats to some of the most affordable places to live in the country, including Harlingen, Texas, Pueblo, Colorado, and Memphis, Tennessee. In Memphis, for instance, the average house costs $208,000. And a trip to the salon costs about $25.
The same salary could afford you a vastly different quality of life depending on where you live. In a more affordable city, you could buy a house with the same income that would leave you struggling to pay rent somewhere else.
Of course, there are other factors that impact where you want to live, such as culture, climate, and job opportunities. Some cities may offer the industries that match up with your career goals, while others do not.
But if you have some job flexibility — or even the choice to work from anywhere — you could lower your cost of living by choosing one of the cheapest places to live. With the money you save, you could pay off your student loans faster or set aside a greater amount for retirement.
2. You could pay a lot less in rent every month
While rent factors into general living costs, it also deserves its own category. The old rule of thumb says you shouldn’t spend more than 30 percent of your income on housing. Spending even less will free up more of your paycheck, too — if you can swing it.
But in expensive cities like San Francisco and New York, some spend far more than 30 percent of their income on rent. After all the required expenses are taken care of, they don’t have much for fun stuff like travel and going out to eat. Even worse, that leaves them with a lot less to accomplish their financial goals.
According to the COLI, the average rent for an apartment is $3,783 in Manhattan and $2,493 in Brooklyn. In Memphis, rent is just about $709 a month. In Harlingen, Texas, it goes down to just $628. If you’re looking to save money, reducing your rent could be an effective place to start. Especially if you can reduce it by $1,000 or more.
3. You could say goodbye to state income tax
Another major factor to consider is state income tax. Most states charge an average effective tax rate of 4.05%; Oregon has the highest income tax at 7.75%. But there are seven states with no income tax at all:
- South Dakota
Plus, New Hampshire and Tennessee don’t tax wages.
Based on national averages for income and state taxes, the average American would save $1,977 a year by moving to a state with no income tax. In fact, Student Loan Hero CEO Andrew Josuweit moved from New York to Texas and saved about $15,640 per year. His move was largely financially motivated, and it helped him tackle $107,000 in student loan debt.
But before packing your bags, consider other potential costs of living in a state with no income tax. To gain additional revenue, some of these states charge higher sales and other taxes. Tennessee, for instance, has one of the highest sales taxes in the country at 9.45%.
So before renting the U-Haul, make sure you won’t be spending more of your income on other expenses than you’ll be saving in income tax.
Should you move to save money?
When you relocate, many often think about all the costs associated with moving. You might rent a truck, pay for movers, and handle fees associated with changing states.
But aside from the immediate costs, moving to one of the cheapest places to live could save you a lot of money in the long run. If you can significantly lower your cost of living, you’ll free up a big chunk of your monthly income. And if you eliminate state income tax, you could have thousands of extra dollars in your pocket each year.
Of course, there are other factors to consider outside of personal finances. Finding a job in your field is an obvious priority, and you may prefer to stay close to friends and family. And sometimes a high cost of living is worth it if you love the culture and vibe of a city.
But if you’re struggling to get by in an expensive place, consider how much you could save by relocating. If you find a new place you love, you could experience a vastly different quality of life with the same income you have now.
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