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 a HCOL vs LCOL area. 

HCOL is an acronym for “High Cost Of Living,” and LCOL stands for “Low Cost Of Living.” Each place has it’s 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 takes 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

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 relative 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 a 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.

screenshot 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 benefits in either way like we saw in the price of food and housing. 

There are also the benefits of transportation and education. 

Living in a 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

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 Eastren 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 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 a 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:

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 a slightly less amount of money than your counterpart in another area, but your cost of living is lower than 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 was 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 a HCOL can be hard to save as much compared to people that live in a LCOL.


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The use of Geoarbitrage:

Geoarbitrage 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

Geoarbitrage 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 geoarbitrage 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 a 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 a LCOL place for 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 a HCOL vs LCOL?

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