I am from a high cost of living (HCOL) area and I see that as neither a roadblock nor a bad thing when chasing FI. In fact, it has several positive elements. A few reasons why I believe this to be true are:
- the higher earning potential
- the higher rents (keep reading for my explanation)
- and the local tax-payer funded services, entertainment, parks, and recreation programs.
Now, I’ve never proven that theory, but I have lived it successfully and I am certainly interested in hearing counter-arguments.
Higher earning potential
First, I am certain that my salary would be substantially lower in a low cost of living (LCOL) area. Not all industries are like that, of course, but many are. And if my salary was lower and my savings rate was the same, I would end up saving fewer dollars.
Secondly, in the northeast where I live, housing costs are relatively high. And while my mortgage payment doesn’t go up, rent and real estate taxes do. Rent rates are reflective of current housing and tax and, therefore, adjust upward annually. If I were to rent out a portion of my house as an apartment or Airbnb, it would pay most of my mortgage. In a few years, it might pay all of it plus the real estate taxes. Without housing costs eating up a large portion of earnings here, I’d be free to save most of my relatively higher earnings in other investment vehicles.
Next, the parks and recreation programs and facilities are manned and offer alternatives to joining private clubs or paying duplicate memberships. As do our library systems, which are funded by our real estate taxes. I can take tennis and golf lessons, even guitar and piano lessons, for free or at a small cost.
We live near large bodies of water–including bays and the Atlantic Ocean–and as a result, there are beaches with lifeguards, marinas for parking and launching boats, and even campgrounds for boats, tents, and campers.
The free concerts and activities are a compelling reason to stick around town on any given evening. And the library programs are full of activities for all age groups. Plus, everything is a short walk, drive, or bike ride away.
How I spend
On top of that, I think I have more control over the amount of money I spend–or don’t spend–than I do earn. Of course, I strive to earn as much as I can the traditional ways–through education, advanced training, experience, and an outstanding work ethic. But, beyond that, controllable spending is my ticket. As a result, I can save more of the higher income here than I would save in a LCOL area with lower wages. That means more dollars to compound, invest, and multiply.
What about you? Are you in a HCOLA trying to reach FI? If so, you can probably achieve desired results more from deliberate spending decisions than moving out of town, especially if you’re in your higher earning years.
- Can you grocery shop a bit smarter? Regional grocery stores are less expensive than the international section of supermarkets. Fresh ginger, bok choy, millet, and quinoa are pennies to the dollar at Patel Bros. and H&L Markets.
- Produce and farmers markets offer discounted produce after a certain time period has elapsed.
- Buying food as ingredients instead of prepared is a controllable expense. Oatmeal costs about $0.79/pound, yielding 16 servings. Add a half of banana for a quarter. Compare that to a package of instant oatmeal with 20 grams of added sugar at $0.50 per serving.
- And in a land where neighbors keep up with the Joneses, you’re more likely to score last year’s furniture, fashions, toys, and recreation equipment at a bargain in a HCOLA. In fact, your neighbors will likely brag about how a perfectly good item is going to the curb. Last week I scored a set of dishes, glasses, and bowls for under $10 for my daughter’s college house.
- Like your tea in the morning? While coffee requires extra ‘work’, the sheer act of boiling water and pouring it over a tea bag in your own recyclable cup is ridiculously easy and costs you pennies, literally. Also, add some hot water to a jar with oatmeal and maybe a few raisins. Cover it up and savor hot oatmeal at your desk with a short list of ingredients that you can pronounce.
- Mind your investment expenses. While this may seem obvious, you’d be surprised how many high income people do not heed this.
Too often I hear my neighbors and co-workers complain about paying too much for “fill-in-the-blank” and not having enough money to retire as they fill their yards with toys, driveways with new cars, and pay for yearly “once-in-a-lifetime” vacations. At least some of us here in HCOL land buy discarded toys at yard sales or online, drive older cars, and gift our children with experiences to remember.