HCOL vs LCOL: The Financial Impact Pros & Cons

Steve Cummings


Looking for places to live can be a daunting task. We need to weigh the pros and cons of each place. How do you pick an area? Here are the pros and cons of living in an HCOL vs LCOL area. 

HCOL is an acronym for “High Cost Of Living,” and LCOL stands for “Low Cost Of Living.” Each place has its right to be a place you may want to choose to live in. Let’s break some of these down.

The Price Differences of HCOL vs LCOL

As we take a look at differences in price the HCOL areas have much higher prices than the LCOL. One common argument is that the income is much higher in these places. 

Prices in houses, transportation, and groceries can really make you think about where you would want to live. 

If transportation, housing, and food really take a majority of your budget you may want to look for a place that has a lower LCOL to save more money. Let’s take a look at some of the places in the states to get a better glimpse of the price differences.

Housing in HCOL vs LCOL

Housing prices

For 2019, the median income of California was $80,440. The median income in the state of Florida was $59,227. 

The median house price in California is $579,332, while the median house price in Florida is around $254,607. 

People in California make around 26% more than people in Florida, but their house price is about 56% more. It is no wonder why people would rather live in a different state than California. The housing alone can cost more. 

People want to like to buy homes. They have several reasons why they like to buy a house.

  • No rent
  • Tax breaks
  • No landlord
  • Home equity increases
  • A place to call your own
  • Custom design to your home
  • Consistent mortgage payments

This is like the American dream. It is to own your own piece of land, and be the owner. There are so many people that think like this.

With the way, banks are starting to work now, 20% for a down payment may become the norm. Interest rates are lower, but coming up with that 20% may be a bit harder to come up with in California vs. Florida. 

Even if we look at some of the bigger cities in the U.S. The median price of a house in Dallas is around $237,000 vs the median price in San Francisco of $1,299,000. You will have to be making a ton of money to be able to afford to buy a house in the bay area.

With interest rates so low, it would be better to buy a house in Dallas over San Fran any day.

Rental Rates for HCOL vs LCOL.

Since we cannot buy a house, what about renting a place to live. 

The average rent for a place in San Francisco is around $3,111. That is still a ton of money, but it allows people to save if they would like to buy a place to live. 

As we look at the average rent of Dallas we notice that it is lower. At $1,250 per month is almost 3 times less than the rent in San Francisco. That means if you make a relatively similar salary you could save 3 times more if you lived in Dallas. 

Even living in Taipei, Taiwan, we have cheaper rents than most of these big cities. As a teacher, earning close to $27,000 a year with my wife we have a combined $54,000  a year. Our rent is close to $640 USD a month. It is much cheaper living in Taipei than in Dallas and San Francisco.

Food prices in HCOL vs LCOL

As we look at the prices of food, you have to wonder where you can save money. I spent a month living in Chicago. Living in Chicago, food was quite expensive to go out to eat. You are talking about $10-20 per meal, and maybe a tip as well. 

If you do that for lunch and dinner, that amount of money can really add up fast. 

It is always best to make your own food at home. 

While I lived in Chicago, there was an Aldi’s down the road. I could purchase sandwich meat, bread, fruit, and it could last me several meals for like $30 or less. Living off of the food you buy and make at home is a cost-saving tip for so many people. 

Chicago is an HCOL place to live. The average meal price in Chicago is around $14. If you compare that to living in a place like Taipei where you can buy one meal for $1-4 then there is a big difference. 

In Mississippi, grocery food is one of the cheapest in the nation. Being able to affordably buy food is something that you need to look at when you are choosing between places to live.

the screenshot is taken from balancingeverything.com

The Transportation benefits of Living in HCOL area

Oftentimes, we look at the cost of everything to see if it is worth living in one area vs another. There can be quite a bit of benefit in either way like we saw in the price of food and housing. 

There are also the benefits of transportation and education. 

Living in an HCOL gives the benefit of not needing a vehicle for your main transportation. Living in Chicago, you did not need a car. You could take the L train to where you needed to go. 

All you needed to do was to pay for a monthly pass, so there was no need to have a car. 

Bicycles are another great mode of transportation. In San Francisco, people are often seen riding bikes. Bikes will give people the freedom to go where they need to go, and in a more compact area you are able to travel much quicker and cheaper. 

The great thing is that you will have less of a chance to spend on car payments, maintenance, and gas. 

That is a win-win.

Education as a factor in HCOL vs LCOL

education rankings in the states

Educational opportunities are really huge. Every year, states get ranked for education. U.S. News has a list of their top States for Education.

The top 5 states in Education are:

  1. Massachusets
  2. New Jersey
  3. New Hampshire
  4. Vermont
  5. Connecticut

These are all located in the North Eastern Part of the U.S. with some of the largest HCOL areas in the U.S.

The bottom 5 states in Education are:

  1. Louisiana
  2. Alaska
  3. Nevada
  4. Alabama
  5. New Mexico

These states are in some of the largest LCOL areas of the U.S.

It shows that the places with the HCOL areas in the U.S. tend to have better education and resources for their students and children.

As you can tell from the map below, the darker areas are the states with the best education. Rankings from 1-50. 

Quality of Life

Now we really need to see how the quality of life is affected in the HCOL vs LCOL. The stress of having to live in areas of HCOL can be too much for some people. 

There is the fear of rent going up, the high prices of food and the lack of affordability could be a tipping point for some people. 

If you were to lose your job, you may not be able to afford to live where you do. As cities are booming from the opportunities for jobs and education the prices will continue to rise. 

This creates some excess stress. 

How do you want to live life? I am more fond of living life cheaper, more enjoyable, and not always worrying about money. In an HCOL area, life can be full of worries. 

People will want to save money, and be able to have enough to retire on.

The Savings Rates of HCOL vs LCOL:

Spending habits

With costs going up, savings rates may diminish due to the higher costs. 

Salaries may stay the same, but as the cost of food, rent, and utilities start to rise the amount of money you are able to save does not stay the same. 

If you are making slightly less amount of money than your counterpart in another area, but your cost of living is lower then you can save more money.

My wife used to be a teacher in Australia. She would say that the workload and stress of being a teacher there were not worth the pay. The pay of her friends is much higher, but living in Taiwan with a lesser pay there is less stress and a higher savings rate. 

On average, we are saving close to 58% of our take-home income. People we know are only saving close to 10-30% of their take-home pay. 

Savings rates are huge when you are striving to hit financial independence. Living in an HCOL can be hard to save as much compared to people that live in an LCOL.

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The use of Geoarbitrage:

Geo arbitrage is moving to a place of lower cost of living. It is like I did 3.5 years ago. I left the U.S. for Taiwan. 

Taiwan is a 1st world country, but the cost of living is significantly less than most of the western world. Therefore moving here makes it a great place to save money, live on less, and have a great quality of life. 

You can live in Taiwan very cheaply

Geo arbitrage allows people to seek new adventures, live on less, and allow their portfolios to continue to grow as they are not paying high prices in HCOL communities. 

Lots of people are using geo arbitrage to turn their finances into gold mines.

One quick example I could think of is a friend of mine who is a Google coder. Since he was working from home due to the pandemic, he asked his boss if he could work from Taiwan. His boss said “yes.” He will be paid a Google salary, which is up in the 6 figures range while working from an LCOL place. 

Digital Nomads do this all the time. They work from their computers and travel the world. There is the opportunity to work from anywhere in the world. 

With this new climate of digital nomadism, we have opportunities to choose where we want to live. We have the choice of HCOL vs LCOL.

Final Thoughts:

There are many places around the world where you can live. In the U.S., there are many opportunities to live in HCOL and LCOL. These opportunities give us much to think about. 

How does it affect our finances? Living in an LCOL place me has given me the ability to travel more, save more, and enjoy life more. 

I am not sure what you all might think, but having the ability to save more is a huge plus. The more you can save the less time you have to work for a job. 

What do you think? Where would you rather live in an HCOL vs LCOL?

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15 thoughts on “HCOL vs LCOL: The Financial Impact Pros & Cons”

  1. LCOL for sure!
    I think I know a more efficient but limited way to grow your savings with little worries about money which is called living off of your family’s fortunes lol

    But I agree with you that living cheaply is the key to FI and if you can have a pay coming from one of those expensive places then you are over the moon. TBH I think you’re getting there man! Look at what you have created here and the upcoming video stuff, it’ll soon no longer be a dream for you anymore!

    • Tommy,

      Unfortunately, most people cannot live off their family’s fortunes. That would be nice. That is why we build our wealth and then work on building generational wealth for our children.

      Yes living cheaply really does add up pretty quickly. If you do have a good pay coming in while working remotely in a LCOL area you can really grow your wealth quite quickly.

      Thank you for the vote of confidence. Everyday is a day in the right direction as long as I keep taking the steps to go forward.

      • Well actually I can choose to work from my home in Taoyuan while getting a Taipei Salary, not sure if that satisfies the condition we’re talking about lol.

        Also I’m currently finishing reading a book called “Saving Capitalism” by Robert Reich.
        It’s a different topic but it covers some of the factors here while looking at some other issues. An example of that will be when real estate markets in HCOL communities remain strong, local tax revenues are high, which means schools in high income areas have more resource and funding than ever. That explains why HCOL areas in the U.S. tend to have better education and resources for their students and children.

        It’s a very detailed book and I think you might like it. It resonates to your another article “Why rich people keep getting richer” but explaining in a complete different point of view.

  2. One thought I had as I was reading through all this, was how taxes can also be incredible factors in HCOL/LCOL, but how they can offer incredible savings if the opportunities there.

    For example, I used to cross into Washington state weekly for grocery shopping due to lower taxes and costs compared to BC. It was only 10 mins away for me and between filling up with cheaper gas and a significantly lower tax and lower cost of food, I was able to save on average $2300 a year compared to just shopping on my own side. Obviously I was still living in an HCOL area, but this helped! I can only imagine the further savings if I had just moved across the border for cheaper rent, income tax, etc etc, what the “savings” would have been…

    • Taxes is a huge one indeed. Part of the reason lots of people are moving away from California is because of the taxes. Even retirees moving to Arizona, Texas, and Florida because of no income taxes.

      Saving on taxes is something that really hits home to a lot of people. If you can save on taxes you can have a higher savings rate.

      Great point Steven B. Thank you.

  3. For those of us that can do it, it really can be a game changer. I think so many people get caught up in ‘quality of life’ without ever actually trying to quantify it. Most 1st world countries are at least a 7/10 by whatever metrics you use. I think fear of the unknown pays a big part, people are prepared to accept HCOL for the comfort of the familiar.

    • Fear of the unknown is a huge part. People are sometimes afraid of stepping outside of their comfort zone. There are new places and lowe cost of living areas that can dramatically reduce your overall cost on things plus provide a great lifestyle.

  4. I like this because it encourages people to move around to succeed at their priorities. It’s unlikely that the best financial situation is right in your own backyard. You might get a higher paycheck in the San Franciso area but a family-size house could cost $800+ and be 90 mins away from your job.

  5. I think the pandemic will certainly help people achieve this dream. Sometimes living in a LCOL area means tighter job market and lower wages, but can obvsiously be beneficial if you’re able to keep one of the higher paying jobs while relocating to a LCOL area, or get a better than average paying job in one.

  6. Great article, Steve! Even within states, the cost of living varies greatly. My family and I actually moved from South Florida (HCOL) to Texas (LCOL), back to South Florida over the past 5 years. We mainly came back to be closer to family but really took advantage of Texas’s LCOL while we lived there.
    Many years ago, people could argue that an HCOL area had higher salaries as well, which is true to this day. However, with geo arbitrage, we are no longer restricted to an HCOL to earn the salary of an HCOL.
    The best of both worlds!

  7. Great post! There are pros and cons to each place but I think that people are scared to give up the comfort of HCOL areas to be able to enjoy the slower pace of life in LCOL areas. I currently live somewhere with a HCOL because we have to be here right now but we hope to move somewhere cheaper and slower.


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