By David Carlson / Last updated: / Real Estate, Renting
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When it comes to the cost of living, I think the main focus should be on the cost of housing. Paying $1,000 a month versus $3,000 a month can make a huge difference in your personal finances and lifestyle. Today I want to discuss how cost of living – housing and rental prices in particular – impact personal finances and lifestyle.
The Low End: Detroit
If you’ve been paying attention to the news here in the United States, you would know that last week Detroit declared bankruptcy. Detroit has been in a downward spiral for quite some time now, so when bankruptcy was declared it shouldn’t have come as a huge surprise. Nevertheless, many were shocked at such a large and iconic city taking such a drastic measure to restructure it’s finances.
One thing that stood out to me last week as I was browsing news about Detroit’s bankruptcy was the extreme drop in home prices that they’ve experienced during the housing crash and subsequent recession. In particular, this list on BuzzFeed of Detroit home prices is enough to make anyone’s jaw drop. Some may even cry.
The High End: New York City
On the other hand, we have the mecca of expensive real estate: New York City. I watch the show “Million Dollar Listing: New York” not just to get some entertainment out of how ridiculous the three realtors are, but also to see some of the amazing properties that they buy and sell. The one thing that I find intriguing is how literal “million dollar view” is when you are looking at apartments in New York City. Very few properties on the show are worth less than $1 Million, and some even surpass the $10 Million mark. Considering the square footage of each place, you could get a comparable property in another city or suburb for 5% of the cost they go for in New York.
I should say there are more “affordable” areas in New York City, just like there are affordable and unaffordable areas of every major metro area. Nevertheless, it is widely known that it is more expensive to live in some high-demand cities like New York, and renting even a tiny apartment can be quite pricey. To understand how hosuing prices can vary from place-to-place, all it takes is looking at a site like THE WORST ROOM, which shows how some pretty undesirable locations that are still relatively pricey compared to what you can get in other cities.
The Impact Cost of Living has on Finances and Lifestyle
Cost of living and the cost of housing have to be taken into consideration in tandem with your career. When considering whether living in a high cost of living area or not, the following thing should be taken into consideration:
- Career Opportunities
Do you want to have a career in investment banking? It probably makes sense to move somewhere like New York City. On the other hand, if your career is in insurance sales, you could realistically live in a variety of different places and have similar opportunities of growing your business. I live hours away from my insurance agent yet I wouldn’t consider switching because the customer service is top notch.
One of my favorite books is The Black Swan by Nassim Taleb. In this book he says he doesn’t buy the theory that today you can live wherever you want and have the same opportunities. If you live in a place like New York City, the face-to-face networking opportunities may far outweigh the relatively higher cost. While this may be true, each individual has to weigh how much value they place on being in a city with more career opportunities but higher costs.
At the same time, it has to be said that if you are a freelance blogger or have a job that allows you to work remotely, it might make sense to live in a lower-cost city. It doesn’t make sense to rent a New York City apartment if you have no career advantage from working in New York City.
- Salary Variance
My friend is moving to Boston and is going to be working in a similar job. He thankfully got an increase in pay to compensate for the higher cost of living that he will come with the move. His parking spot alone will cost $250 a month!
When you are considering working in city A versus city B, consider whether your pay will reflect the higher cost of living. Continuing with my freelance blogger example, it makes sense to live in a lower cost of living city if you are going to get paid $50 a post regardless of where you decide to reside.
With the rise in telecommuting options (and I think we’ve only seen the tip of the iceberg as far as remote work arrangements), we may see more workers opting to live in cities that offer lower costs of living. By living in a low cost city, the worker can cut their expenses without cutting their income, which would result in more money for saving, investing, and spending on things of value to them.
- Lifestyle Considerations
Besides impacting your career opportunities, where you live will have a big impact on your lifestyle. While you may be able to get by with low expenses in a more rural area or a far-flung suburb, you might also want to be closer to the city for entertainment, dating, and other purposes. Many people move to the suburbs eventually because the farther you go the more house you can get for your money. At the same time, though, you may have a long commute to work that impacts your quality of life.
Living closer to a city may be more expensive, but it also may be worth the trade-off for many individuals because it provides the lifestyle they want.
There is a ton of variance in cost of living when you compare different cities. At the same time there is a reason some cities are expensive; they offer better career opportunities. Each individual has to take into consideration how important those opportunities are and whether the salary they will make in a high expense city is worth it.
What are your thoughts on living in a low cost of living city versus a high cost of living city?
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David Carlson
David Carlson is the founder of Young Adult Money. He is a nationally recognized speaker and the author of Student Loan Solution (2019) and Hustle Away Debt (2016). His opinions have been featured on such media outlets as The New York Times, The Washington Post, Cheddar, NBC's KARE11, and more.
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YourDailyFin saysThey way people think they should live and what they maybe should be doing always amazes me. I have a few friend that make six figures but they live in major cities and it just doesnt go far. To add to that they want to be out and about spending money as though they live in GA or SC making 100k. Its sad whats going on in Detroit, but there will be many that see this as an opportunity and they will buy property and land for cheap and hold.
If you are willing to make sacrifices then I don’t really think one city or the other matters. There has to and will always be a trade off. I like living near the beach and being as such I was able to get the location but got a smaller home. More of the people I know would rather have the larger home even if it means living away from most things. As usual it comes down to choice and preference. I have lived in SC and FL and though it much cheaper to live in SC I would rather be here and pay more money.- DC @ Young Adult Money says
YourDailyFinGreat point – it’s all about trade-offs and what each individual is looking for.
I definitely agree that housing costs are probably the biggest consideration. It’s just such a big monthly commitment and is an easy way to save a ton of money. I’m curious why your friend thinks he needs a $250 parking spot. Is that for work or for home? I lived in the heart of Boston for several years and never had a parking spot. On occasion it was a pain, but I always got a spot within a few blocks of my place. A dedicated spot definitely wouldn’t have been worth $250 a month for me.
- DC @ Young Adult Money says
Matt @ Mom and Dad MoneyHmmm interesting. I know he will live very close to Fenway and Boston College. Is there a lot of parking in that area?
- SenseofCents says
Love this post. I live in St. Louis, and I love it here. The cost of living is low, but salary and jobs are at the same level as high cost of living areas. Best of both worlds!
- DC @ Young Adult Money says
SenseofCentsThat does sound pretty ideal! I wonder how long that can last, though? I imagine cost of living may slowly creep up if St. Louis continues to add high paying jobs?
- BudgetforMore says
We chose to take the suburbs route with more affordable housing route. No doubt commuting sucks.. But I hope to eventually find a job in the suburbs.
- DC @ Young Adult Money says
BudgetforMoreWe might eventually move further out in the suburbs to get a larger house, especially since we want four kids :0 Then there is enough room for them all without it feeling cramped. We do love our current location but the money would have gone a lot further in a suburb.
- BudgetforMore says
DC @ Young Adult MoneyBudgetforMoreYes its hard when you always need to consider the future. We bought our house last year. It has three bedrooms but they are rather small so we could make room for baby if we had to but it wouldn’t be ideal. 4 kids! you are going to need a big house : )
- DC @ Young Adult Money says
BudgetforMore We also bought a house last year and has three smallish bedrooms upstairs. Could work for 2, maybe 3 kids, but basem*nt bedroom (which we currently rent out) wouldn’t be ideal except for a teenager.
BTW what is your blog address if you have one? I didn’t see it on your livefyre profile. - BudgetforMore says
DC @ Young Adult MoneyBudgetforMore budgetingformore.wordpress.com
- DC @ Young Adult Money says
BudgetforMoreCool thanks!
- brokeandbeau says
It drives me crazy that New York City is the heart of the theatre world. For the profession with the least stable income, you have to be in the most expensive place. That said, there are definitely deals to be found in terms of housing. I used to live in West New York, NJ (about 15 minutes from midtown manhattan) and paid $500/month for a fantastic apartment.
- DC @ Young Adult Money says
brokeandbeauWow, $500/month is a steal from what I’ve heard about housing prices in and around New York!
- seedebtrun says
We choose to live in the Midwest, which is certainly on the low end of the cost of living scale. It would be hard for us to adjust to a mortgage that costs 2x-3x what we are currently paying.
- DC @ Young Adult Money says
seedebtrunSame here. I live in the Midwest though I do live in an area where housing prices are a little higher because there are a lot of good jobs in the area as well as entertainment options. I know it could be far worse, though, in a place like San Francisco.
- SingleMomIncome says
I live in a small town in Ohio. Houses are cheap, cheap. You can find a decent house for $50k. The problem is good jobs are few and far between. You’d have to drive 45min + to Cincinnati to get a good job.
- DC @ Young Adult Money says
SingleMomIncomeI have definitely seen this where I live. While housing prices may not be quite that low, your money goes a lot farther the further you move out. Question is, are you willing to drive 1 hour + each way every single day to get that house?
- DonebyForty says
This is a complex issue. I agree that income and housing seem to be the primary drivers, but I worry about the changing job landscape’s impact on such decisions. Workers are now more likely to have short tenures with companies (I’d recently read the average is about 3 years). A move to either a low cost or high cost area can have transaction costs as well as impacts on future job prospects that should enter into the analysis.
- DC @ Young Adult Money says
DonebyFortyI definitely agree that the impact a move has on future job prospects is one of the KEY things that should be taken into consideration. One reason I choose to live in the city I did was because it was kind of “central” to the metro area I live in. Who knows what company I will be with five years down the road? No matter what I won’t have an extreme commute, nor will a company’s relative location in the metro area deter me from working there.
- JourneytoSaving says
I live in a pretty high cost of living area and can’t wait to move to a more low cost one. I’m still not really in a “career” so I have flexibility there, and my boyfriend has stores in at least 25 states that he can transfer to. It’s exciting because I’d love to experience living in different parts of the US.
My parents just moved to a lower cost of living state so that they could retire comfortably. They were struggling to afford it here. It’s painful to see what we’re paying in rent compares to some peoples total monthly expenses. It will definitely enable us to pay more toward our student loans and hopefully save more/invest more.- DC @ Young Adult Money says
JourneytoSavingIt’s great that you guys have the freedom to move to a different place that will cost less! That’s also great for your parents. While I may have trouble moving away from children/grandchildren someday, I also would want to retire in a more affordable area.
- ayoungpro says
I live in a place that is fairly low cost-of-living. I have the best of both worlds though, because my area is also a hot tech area with high salaries.
- DC @ Young Adult Money says
ayoungproHmm I wonder how long that is sustainable? Usually an abundance of high-paying jobs leads to higher cost of living.
- ayoungpro says
DC @ Young Adult MoneyayoungproTrue, but I’m happy to take advantage of it in the mean time!
- DC @ Young Adult Money says
ayoungproHaha true, who wouldn’t?!?
- Tara Zee says
A post close to my heart. My fiancee and I live in NYC because he works in TV post production (the editing side of TV) and jobs in that career only exist in two places, NYC or LA. TV is his dream career and he seems to enjoy working. I don’t know how long I want to stay in the city as the only homes in our price range that also include a parking spot and some outdoor space are on the edge of Queens and would require a 1.5 hour each-way commute to Manhattan (New Jersey is not an option because their property taxes are significantly higher than NYC). Since he’s not a big baller yet in his career, we have talked about keeping a time limit to our stay in the city. So one day he may have to leave his dream career and we venture off to the cheaper, nearby Pennsylvania. Things can change however, so who knows.
My brother also lives here as a lawyer at a large firm and while there are a few cities in the US with big legal markets, NY is where it’s best to be to build up a career. He never got his driver’s licence (despite growing up in Texas) so I think he’s here to stay!
For the record, affordable housing can be found, but you have to be open to living outside the glamour of Manhattan. We currently live in a rent-stabilized apartment and pay $1,350 a month guaranteed until June 2015 for a small two bedroom in Brooklyn (with a 25 minute commute to Manhattan). One great thing about NYC that many people don’t realize is most older apartments have heat and hot water included (radiant steam heat), and we never pay any additional fees for garbage or other services. We just pay for cooking gas and electric. So in the winter time, when other people are paying upwards of $150 a month for their heating bills, we’re paying none of that and enjoying a toasty, City-mandated-temperature apartment. Although the lack of central air conditioning does suck when you have to use the not-so-efficient window units to cool down your hot cement cave that you call home. ;)- DC @ Young Adult Money says
Tara ZeeThanks for sharing your insights, Tara! NYC is a fascinating place, and it’s awsome that your husband is working in his dream career field. That rent is definitely reasonable for NYC and I hope my post wasn’t too misleading about how much it costs to live there. Having heat included sounds awesome, and our last apartment had it included as well. Was definitely nice in the Winter!
- Tara Zee says
DC @ Young Adult MoneyTara Zee On no, your post wasn’t misleading at all. If a person is willing to live in a less “hip” neighborhood of any expensive city, they usually can do well.
- DC @ Young Adult Money says
Tara ZeeMakes sense!
- krantcents1 says
I have always lived in major cities (currently Los Angeles & formerly NYC) . Although both cities are expensive for housing, the salaries offsets most of that cost. These cities provide unlimited opportunities, but there is a cost. It helps that I have lived here for 40 years. Some of the costs are not reflected in a CPI are gas, utilities and taxes. It is an individual choice if it is worth it.
- DC @ Young Adult Money says
krantcents1There is definitely some higher salaries in the big (expensive) cities. Everyone has to weigh how much they value living in a place like NYC or LA, but like you said there is a lot of opportunities that make it worth it for many.
When I moved from a small town to Minneapolis, I didn’t do enough due diligence so the first year was quite tight. I didn’t go into debt but had a very tight budget with little wiggle room. It wasn’t a lot of fun! Fortunately I found a new job with a significant salary bump. I learned my lesson so when I moved to LA, this time I took the time to figure out how it would affect my finances and lifestyle. The salary increase didn’t completely offset the higher cost of living but the payoff of living in LA, which I always dreamed of doing, was worth it. Now that I freelance, I don’t have to live here but it’s where I want to live. Some days I wonder why when I consider the high rent, etc. but other times it simply motivates me to work harder so I can continue to live where I want.
- DC @ Young Adult Money says
Tanya@The Heavy PurseThanks for sharing Tanya! Minneapolis can be quite expensive, and one of my friends who recently moved to the metro area had a small “price shock” at how much more rents were than her college town. Or maybe I was just amazed at how much rent can vary from place to place? Haha either way it definitely can vary greatly from city to city, but as you said it can motivate you to work harder and make it work.
- TacklingOurDebt says
I live in the 3rd most expensive city in Canada and originally moved here because of the job opportunities. When I worked downtown I paid $400 a month for parking. My salary was nice but I still felt like I paid way too much to go to work.
And similar to NY, many homes and condos here are sold for a higher price based on their view of the mountains. The average price for a condo downtown is $2Mill.
Over the past few years we have had many discussions around exactly what you are saying. Should we move to a location that has a lower cost of living, esp since we can work from anywhere. While we would love to we just can’t decide on a place.- DC @ Young Adult Money says
TacklingOurDebt$400 a month isn’t cheap for parking, though parking in Minneapolis and lots of other downtown areas are quite expensive as well. I think I’d have a hard time picking a place as well. Once you are settled in it’s hard to move. I feel pretty settled where I’m at but I’m willing to move because we’re young and worst case scenario can always move back.
- Beachbudget says
It’s something I think about ALL the time! I’d like to live in a lower cost of living area, but there are opportunities to be had in LA. I do know there is post-production work in other cities, but it just may be harder to come by, although I’ve done it both in Detroit and Seattle. But the beach, ocean, and weather are still huge draws for me living in LA. I don’t know…I guess I just have to play it by ear!
- Eyesonthedollar says
It is really cheap to live where we do, but like some of the other comments, I will have to say it’s harder to find a good paying job unless you work in health care, engineering (tons of oil field work) or own some type of business. My salary would be the same or maybe even less in NYC, so I would be pretty poor there.
- Phroogal says
I grew up in New Jersey, lived in Manhattan then lived in SF Bay Area (Palo Alto). I thought living in Manhattan was expensive until I got to the Bay Area.
I remember I went to Miami for work and had a drink in South Beach which cost $33 (I should have asked first). The next day I flew to Providence, RI and got the same drink for $4.
I promote in having lifestyle goals in addition to financial ones. Great post, DC. I would never live in a place like NYC. I know it sounds silly, but spending that much cash for a place to live just seems outright ridiculous to me.
- momoneymohouses says
We moved to Toronto for job opportunities, but actually we find it a tiny bit cheaper than in Vancouver. Nevertheless, we have to work in a big city because of our careers meaning we will either always have to pay high housing costs or commute.
- Tara Zee says
momoneymohousesyes, that is something I also feel people forget about when it comes to finding a cheap place to live. Where my fiancee’s family lives in Central Pennsylvania in a rural area, you can get a home for $30,000. But because it’s old coal country, there are no jobs around. Both of his parents have to drive an hour to work each way in Harrisburg, PA. So while you may save on housing costs, you pay much more money and time in commuting costs.
- RFIndependence says
I just wrote a post about Detroit home prices too haha I was dreaming about buying a dozen houses for nothing. Living in NY is something I’d like for a year or two maybe, but am not sure I wouldn’t see more with a few holidays there than an extended stay. I can’t justify putting $1M in a house that is not producing anything to live off. Even if you are a big shot trader with $200K bonuses you need 5 years just to pay for that house. I’d rather be free earlier.
