Minimizing total cost of living

October 20, 2008 7:05 PM

How can I determine the best places to live if I want to save as much money as possible?

I'm going to graduate from college and start working next year (in the software industry). One of the biggest priorities in my life for the coming years is to live frugally and save up as much money as possible. Therefore, I'd want to live in a place (in the US) where the cost of living, taxes, and other expenses are low. As long as I'm in a fairly safe neighborhood with decent living conditions and live near a modern city, it doesn't make a huge difference to me whether I live in, for example, Manhattan or in Pittsburgh.

I found some cost of living calculators, like BestPlaces.net and CNN Money Cost of Living Comparison.

These indicate that it is massively cheaper to live in certain areas of the US than others. For example, a salary of $60,000 (not my anticipated salary, just a round number) in SF is listed as equivalent to around $30,000 in Durham, NC.

This seems questionable to me. Both websites seem to just calculate a ratio between the CPIs in both locations, and multiply by your income. This seems unrealistic to me for a couple of reasons:

(1) It seems to me the cost of living is dependent on how much I spend, not how much I make. So if I am frugal and don't spend much, then my cost of living won't go up by much, even if I make a lot.
(2) These figures don't appear to factor in differences in state taxes. So an income of $100,000 would be a liability in a state with high income taxes.

How can I arrive at a proper comparison of the cheapest place to live that takes into account my frugality as well as taxes based on my income?

(By the way, I am aware that regional salaries tend to vary with the cost of living.)

posted by lunchbox to work & money (10 comments total)

My inclination would be that finding the area where you can find the highest income potential, and then living particularly frugally would be the best way to save up. My further guess would be that this area wouldn't be the one with the lowest cost of living.

Certain things lend themselves to frugality more than other things. For example, avoiding driving in an area with high parking costs is easier than avoiding living indoors in a place with particularly high rent, but you do have control over how you choose to spend your money.
posted by paisley henosis at 7:22 PM on October 20, 2008

This doesn't address your frugality, but I've found the Mercer HR index to be much more reliable than CNN or any others. Because they do hiring/staffing, they've got a much more comprehensive understanding/exploration of expenses/taxes/etc. It's probably the most comprehensive cost-of-living study done regularly.

According to their survey, the cheapest city in North America last year was Ottawa, where I happen to live, but the Canadian dollar has pushed everything up this year, and now it's Winston-Salem.

Here is the only (free) copy of the 2008 survey I could find, hopefully it helps some.
posted by Jairus at 7:28 PM on October 20, 2008

My only advice is to seek what represents your values. If you're a hard-charging entrepreneur, go for the big city life, but make sure you always do the math. My sister got "trapped" in SFO in a job that pays great money, but her housing, commute, and taxes eat up all of it. I live in a rural area, have a stable but low paying gubmint job, am very frugal, and my gross income will exceed hers next year. My net income after taxes and required living expenses (housing, car pmt, gas, food, healthcare) already exceeds hers by like 4x. My cost of living goes down after this year because my car will be paid off. Hers goes up along with her rent.

Better yet -- I don't have any of the big city headaches... my commute time's about ten minutes in light-to-no traffic, there's no crime, and my taxes and filing requirements are minimal compared to hers. I don't have to wait at restaurants. I don't have any city hassles at all. And Amazon gets things here just as fast as they'd get to my door if I lived in downtown Seattle. My values are a little different, though -- I'd rather chase a calm, stable, pastoral lifestyle where my after-hours activities are focused on building multiple alternate hobby sources of income as opposed to focusing 80-100 hours a week on a day job that may get snatched out from under me in a layoff.

Always keep in mind that it's not so much what you make, it's what you get to keep. Make sure you ask around and get all the facts -- like how much it costs to bring a car into California from out of state. Cost me $65 in TX. Sis found a loophole since her car is a Super-ULEV (since closed, so don't ask), and it STILL cost her a thousand bucks to bring her car into CA. Always do the math.
posted by SpecialK at 9:09 PM on October 20, 2008 [1 favorite has favorites]

Your optimization problem is missing one important factor, namely your starting salary. Why not apply for jobs all over the country, since you're obviously willing to relocate, and then optimize once you have some offers? What you really want is the ratio of area software industry starting salary to area cost-of-living, but I don't know that information is available.
posted by qxntpqbbbqxl at 9:26 PM on October 20, 2008

FWIW, I seem to recall that property - whether renting or buying - is cheapest in Oklahoma. It is also centrally located. Housing is often the largest expense in a budget, so consider OK.
posted by davidmsc at 10:35 PM on October 20, 2008

Hmmmm. I agree that if the goal is to save you should focus on income, then live cheaply where you end up. You could live in a big city and spend a lot on rent but save that much back by not owning a car and enjoying cheap and free entertainment.

But if you want to live cheap, try the Missouri Ozarks. Pretty too.
posted by LarryC at 10:43 PM on October 20, 2008

If you *really* don't care where you live, you could go live in my hometown of Wayne, Nebraska, where the per-capital income is $13,984 and you can reasonably rent an entire house for $300/month. I'm not sure how close you want to live to a city, or what a "modern" city is, but it would be dirt cheap, especially if you got a contracting job where you could work remotely. There are tons of small towns like that in the Midwest, of course. If you want to live near a big city (Chicago as opposed to, say, Omaha), then a small town outside of Chicago may be your best bet.
posted by timoni at 1:06 AM on October 21, 2008

You might want to consider also that moving, especially long-distance, is expensive, and it's also a pain in the butt. With that in mind, perhaps you should be making a choice in terms of where you want to live for years and years to come. Your frugal life in the short-term might entail sharing a rentail apartment with roommates. In the long-term, you might want or need to own a condo or house. Take the long-term possibilities into account when you decide.

Taking income taxes into account shows that you're thinking of many details, and that's great. You might also want to consider other taxes. For example, some states have sales tax on food; others do not. In some states or localities, there is an ad valorem tax on your car or other personal property. And of course, if you eventually own a house or condo, those property taxes can vary quite a bit depending on state and local financial systems. Here in TX, for example, I have no state income tax, but my property tax is higher than it was when I lived in CA.

There's also essentials, such as utilities and insurance, that can vary quite a bit from state to state. This depends not only on the climate (what do you spend for A/C or heating? do you have to have hurricane or earthquake insurance?) but also the state and local regulatory environment. These sorts of calculations can get very complicated.

Not knowing you personally, I can't recommend any particular place. This is just my thoughts on strategy. In the long run, though, your happiness and personal satisfaction is what matters most. Although you say that it doesn't matter to you now just where you are located, I hope that you will find a place that you love and where you'll feel at home.
posted by Robert Angelo at 7:18 AM on October 21, 2008

Follow the biggest salary (or most prestigious job that will lead to a big salary), then live frugally. Frugal living is possible in any big city, as long as you are willing to compromise.
For example, New York City has one of the highest costs of living, but you can definitely live frugally there. You can still share a nice apartment in Washington Heights or Harlem for $600 - $700/month. Your total transportation costs will only be $81/month with your unlimited Metro card. All the other necessities in life -- food, clothing, and even entertainment -- can be found just as cheap in New York if not cheaper than anywhere else. And I dare say a picnic in Fort Tryon is much more edifying (and cheaper!) than reading the Amazon.com books delivered to your bunker in rural Nebraska where the cost of living is technically lower. You may not want to live this way forever, but now is the time in your life to do it!
posted by footnote at 7:44 AM on October 21, 2008

Thanks for the great answers, everyone! These were all very informative.
posted by lunchbox at 5:55 PM on October 21, 2008