The Top 10 Cheapest States to Live in Have Hidden Costs

cheapest states to live in

When you’re deciding where to live, a state’s cost of living can make a big difference.

But sometimes the cost-of-living index doesn’t tell the whole story. For example, it might not factor in tax rates. What’s more, some of the states with the lowest costs of living have even lower median household incomes.

We’ve run the numbers for all 50 states as well as the District of Columbia to determine the top 10 cheapest states to live in. We’ve also included extra data on each of the top 10 states to give you the full picture.

The 10 cheapest states to live in

Based on data from the Missouri Economic Research and Information Center in the second quarter of 2017, we’ve ranked the 10 cheapest states to live in. The rankings are based on the cost-of-living index score for each state, which is compared to the national average score of 100.

Because the cost-of-living index doesn’t account for taxes, we’ve also included state income, property, and sales tax rates from the Tax Foundation. These rates are for your information only and aren’t included in the ranking calculation.

10. Alabama

cheapest states to live in

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  • Cost of living index: 90.7
  • State income tax rate: 5.00%, ranked No. 17 (tied)
  • Property tax rate: 0.43%, ranked No. 2
  • Sales tax rate: 9.01%, ranked No. 48
  • Median home price: $189,900
  • Median rent cost: $975

Rounding out our top 10 list is Alabama, nicknamed the Heart of Dixie. Residents might add that their hearts lie in football, as the University of Alabama has won the third-most national championships in college football history.

In terms of affordable living, Alabama is a state of contrasts. For example, it has the second-lowest housing costs in the U.S. at 73.5 percent of the national average. Utility costs, however, are 5.9 percent higher than the national average.

If you’re a property owner in the state, you’ll enjoy one of the country’s lowest property tax rates. But you’ll also pay one of the highest sales tax rates in the U.S.

In addition to ranking in the top 10 cheapest states to live in, Alabama has the sixth-lowest median household income at $47,221.

Bottom line: Alabama is great for homeowners, but low income can make it hard to afford other essential costs.

9. Georgia

cheapest states to live in

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  • Cost of living index: 90.6
  • State income tax rate: 6.00%, ranked No. 28 (tied)
  • Property tax rate: 0.95%, ranked No. 25
  • Sales tax rate: 7.00%, ranked No. 29 (tied)
  • Median home price: $225,900
  • Median rent cost: $1,300

Georgia’s capital city, Atlanta, is the birthplace of the civil rights movement’s most recognizable leader, Martin Luther King Jr. The state also is well-known for its peaches, pecans, and peanuts, but these goods come at a cost.

The only cheap expense for Georgia residents is housing. The Southern state’s housing costs are 75.8 percent of the national average.

All other cost-of-living components are fairly close to the national average, with groceries the highest at 99.5 percent. What’s more, the tax burden for Georgia residents is about average compared to other states.

The state’s median household income of $53,527, however, falls in line with its cost of living. It’s 90.7 percent of the national average.

Bottom line: Although housing costs are among the nation’s lowest, don’t get your hopes up. All other cost-of-living components are about average.

8. Texas

cheapest states to live in

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  • Cost of living index: 90.6
  • State income tax rate: N/A
  • Property tax rate: 1.90%, ranked No. 46
  • Sales tax rate: 8.19%, ranked No. 40
  • Median home price: $269,000
  • Median rent cost: $1,500

Texas was once an independent nation, and six flags have flown over it: British, French, Mexican, Texan, United States, and Confederate. It’s the largest oil producer in the country, and it has more cattle than any other state, with 12 million heads.

Texans pay less for housing than any other major expense, with housing costs coming in at 83.9 percent of the national average. The state also has the third-cheapest grocery costs, with residents paying 90 percent of the national average.

What really sets Texas apart, however, is the fact that it’s the only state on this list that doesn’t have a state individual income tax. Only six other states follow suit: Alaska, Florida, Nevada, South Dakota, Washington, and Wyoming. New Hampshire and Tennessee tax only dividend and interest income.

Of course, the state government makes up for that lost revenue by charging some of the highest property and sales tax rates in the country.

Despite the state’s low cost of living, its median household income of $58,146 is almost on par with the national average of $59,039.

Bottom line: Decent median household income numbers and a lack of sales tax give residents more money to spend, but property and sales taxes neutralize some of those benefits.

7. Michigan

cheapest states to live in

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  • Cost of living index: 90.3
  • State income tax rate: 4.25%, ranked No. 12
  • Property tax rate: 1.78%, ranked No. 44
  • Sales tax rate: 6.00%, ranked No. 12 (tied)
  • Median home price: $169,000
  • Median rent cost: $1,100

The northernmost state on our list, Michigan is the only state where you’ll find both Paradise and Hell — or at least two cities with those names.

Michigan deserves its place on this list of cheapest states to live in because of its low housing costs. Michiganders spend just 78.7 percent of the national average on housing. Transportation costs in the state are higher than average, though (103.8 percent).

The state’s income and sales tax rates rank among the lowest in the nation, but its property tax rate is one of the highest.

Although Michigan’s cost of living is 90.3 percent of the national average, its median household income of $57,091 is 96.7 percent of the national average.

Bottom line: The state’s low housing costs are dampened by the high property tax rate.

6. Missouri

cheapest cities to live in

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  • Cost of living index: 89.9
  • State income tax rate: 6.00%, ranked No. 28 (tied)
  • Property tax rate: 1.02%, ranked No. 26
  • Sales tax rate: 7.89%, ranked No. 38
  • Median home price: $169,000
  • Median rent cost: $975

Missouri has produced some of the best literary minds in U.S. history. T.S. Eliot, Mark Twain, Tennessee Williams, and Sara Teasdale were all born in the state.

Like most other states on this list, Missouri can thank low housing costs for its place in the top 10. But while residents spend just 74.1 percent of the national average on housing, their utility costs are 4 percent higher than the national average.

The state’s income, property, and sales tax rates are all above average. But like some other states on this list, Missouri’s median household income of $55,016 outpaces its cost of living, measuring at 93.2 percent of the national average.

Bottom line: Missouri might not have made this list if taxes had been included in the calculation.

5. Oklahoma

cheapest cities to live in

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  • Cost of living index: 89.8.
  • State income tax rate: 5.00%, ranked No. 17 (tied)
  • Property tax rate: 0.86%, ranked No. 21 (tied)
  • Sales tax rate: 8.86%, ranked No. 46
  • Median home price: $176,360
  • Median rent cost: $1,000

Despite being landlocked, Oklahoma has 55,646 miles of shoreline, with its lakes and ponds covering a larger area than the state of Rhode Island. Like its neighbor to the south, Texas, Oklahoma’s largest industry is energy.

Although Oklahoma’s cost of living is one of the lowest in the nation, its sales tax  which residents pay on many of the goods that make up the cost-of-living index  is among the highest.

The state’s low cost of living is driven largely by housing costs  76.4 percent of the national average  but also by its transportation costs, which are the fourth-lowest in the country.

Unfortunately, the state’s median household income doesn’t keep up with the cost of living in the state. The $50,943 figure is only 86.3 percent the national average.

Bottom line: Homeowners get the biggest benefit, but the state’s low median household income isn’t enough to make the low cost of living worth it for some people.

4. Kansas

cheapest places to live in

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  • Cost of living index: 89.7.
  • State income tax rate: 4.60%, ranked No. 14.
  • Property tax rate: 1.39%, ranked No. 37.
  • Sales tax rate: 8.62%, ranked No. 44.
  • Median home price: $164,500.
  • Median rent cost: $1,025.

Kansas is known for its rolling hills and cornfields. And like other Midwestern states, its housing costs are fairly low (78.2 percent of the national average).

That said, other cost-of-living components aren’t much lower than the national average, and the state’s sales tax helps counteract below-average grocery costs.

The median household income of $56,810 helps make up for it, though. The state’s residents also earn 96.2 percent of the national average.

Bottom line: If it weren’t for cheap housing, Kansas might not be on this list. But with a decent median household income, residents can handle it.

3. Tennessee

cheapest states to live in

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  • Cost of living index: 89.4.
  • State income tax rate: 6.00%, ranked No. 28 (tied).
  • Property tax rate: 0.75%, ranked No. 13.
  • Sales tax rate: 9.46%, ranked No. 50.
  • Median home price: $190,000.
  • Median rent cost: $1,295.

Home to country music, blues, and barbecue, Tennessee is almost half farmland.

Although the state’s housing costs are only 77.4 percent of the national average, they’re among the highest on this list.

Transportation costs, which are the third-lowest in the country, bring down the state’s cost of living even more. Also, health costs are the second-lowest, which is notable considering the state is part of the Stroke Belt.

Residents shouldn’t celebrate too early, though; the state has the second-highest sales tax rate in the nation. What’s more, its median household income of $51,344 doesn’t keep up with the cost of living, coming in at 87 percent of the national average.

Bottom line: Housing and health costs are impressively low, but the state’s sales tax on everyday goods can feel oppressive.

2. Arkansas

cheapest states to live in

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  • Cost of living index: 87.4.
  • State income tax rate: 6.90%, ranked No. 36 (tied).
  • Property tax rate: 0.62%, ranked No. 10.
  • Sales tax rate: 9.30%, ranked No. 49.
  • Median home price: $160,000.
  • Median rent cost: $1,025.

Nicknamed the Natural State, Arkansas is home to the only diamond-bearing site open to the public, Crater of Diamonds Park, which has a “finders keepers” policy with its natural diamonds.

But that isn’t Arkansas’ only gem. The state has the lowest transportation costs in the country, costing residents 87.9 percent of the national average. Housing costs are also low at 77 percent of the national average.

The state also ranks high for the lowest health and miscellaneous expenses as well as the lowest property taxes. That said, citizens pay the third-highest sales tax rate of any state.

Arkansas’ low cost of living doesn’t provide a lot of value to its residents, either. The state’s median household income is $45,907, which is just 77.8 percent of the national average.

Bottom line: Despite the state’s low cost of living, many Arkansans don’t make enough money to take advantage of it.

1. Mississippi

cheapest states to live in

Image credit: Pixabay

  • Cost of living index: 85.5.
  • State income tax rate: 5.00%, ranked No. 17 (tied).
  • Property tax rate: 0.80%, ranked No. 16 (tied).
  • Sales tax rate: 7.07%, ranked No. 32.
  • Median home price: $172,900.
  • Median rent cost: $1,100.

Elvis Presley and blues became well-known in Tennessee, but both were born in Mississippi.

Although the state tops our list for the cheapest cost of living, the tax burden can neutralize some of the savings on household goods.

The state’s biggest savings come in housing costs, which are 69.3 percent of the national average. Groceries are the biggest expense for Mississippians relative to other everyday expenses, costing 94.4 percent of the national average.

The median household income is also the lowest in the U.S. at $41,099 (69.6 percent of the national average).

Bottom line: For Mississippians, it’s a good thing the state’s cost of living is so low. But there’s still a lot of room for income levels to catch up.

Consider all the costs before moving

For all the states on our list of cheapest states to live in, housing prices are the biggest factor in driving down the cost of living. But in many cases, other expenses aren’t far off from the national average.

If you plan to move to one of these states to take advantage of the lower costs, consider the state’s tax burden, which isn’t reflected in the cost-of-living index. Depending on your financial situation, it could limit the benefit of lower costs in other areas.

See how your state stacks up

Methodology: These rankings are based on data from the Missouri Economic Research and Information Center for each of the 50 states and the District of Columbia. For added context, we also included state income tax, property tax, and sales tax rates from the Tax Foundation.

Tax rates are based on the most recent data available. Income tax rates are based on 2016 figures, property tax rates on 2015 figures, and sales tax rates on 2017 figures.

Additionally, median home price and rent costs were sourced from Zillow, and median income data was sourced from the U.S. Census Bureau. 

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Published in Financial Tips, Smart Tips for Saving Money, Taxes