Author: J.D. Roth / Source: Get Rich Slowly
While visiting Raleigh earlier this month, I spent a morning with my pal Justin (from the excellent Root of Good blog) and his wife. As we sipped our coffee and nibbled our bagels, the conversation turned to cost of living. (Money nerds will be money nerds, after all.
)“Things are cheaper here in North Carolina than they are in Portland,” I said. “Food is cheaper. Beer is cheaper. Hotel rooms are cheaper. Your homes are cheaper too. Last night, as I was walking through the neighborhood next to my hotel, I pulled up the housing prices. I was shocked at how low they are!”
“Yeah, housing costs are lower here than in many parts of the country,” Justin said.
“Take our house, for instance. We bought it in 2003 for $108,000. Zillow says it’s worth around $198,000 right now. But I’ll bet that’s a lot less than you’d pay for a similar place in Portland.”
He’s right. Justin and his wife own an 1800-square-foot home on 0.3 acres of land. Their place has four bedrooms and 2.5 bathrooms. There’s only one place for sale in Portland right now that matches these stats and it’s going for $430,000 — more than twice the price the same home would fetch in Raleigh.
Housing is by far the largest slice of the average American budget, representing one-third of typical household spending. Because of this, the best way to cut your costs (and, therefor, boost your “profit margin”) is to reduce how much you spend to keep a roof over your head.
One obvious way to cut costs on housing is to choose a cheaper home or apartment. But if you truly want to slash your spending, consider moving to a new neighborhood. Or city. Or state. If you’re willing to change locations, you can supercharge your purchasing power and accelerate your saving rate.
Cost of living is one of those factors that people seldom consider, but which can have a huge impact on the family budget — sometimes in unexpected ways. According to The Millionaire Next Door:
Living in less costly areas can enable you to spend less and to invest more of your income. You will pay less for your home and correspondingly less for your property taxes. Your neighbors will be less likely to drive expensive motor vehicles. You will find it easier to keep up, even ahead, of the Joneses and still accumulate wealth.
It’s one thing to talk about the effects of high cost of living, but another to actually experience it.
Cost of Living in Real Life
On our fifteen-month road trip across the United States, Kim and I made a point of watching how prices varied from city to city and region to region.
While stranded for ten days in rural Plankinton, South Dakota, for example, I paid $10.60 for a fancy men’s haircut. At home in Portland, I pay $28 for the same fancy haircut. In Fort Collins, Colorado, I paid $30 for a haircut. In Santa Barbara, California, I paid $50 or $60 for the same fancy cut.
Gas was cheaper in South Dakota too. So was food. So was beer and whisky. So were movies. So was just about everything, including housing. Housing prices followed a similar pattern to the haircut prices I mentioned above. A $280,000 home in Portland might go for $300,000 in Fort Collins and $500k to $600k in Santa Barbara. In South Dakota, that same home would cost about $106,000.
A couple of years ago, I exchanged email with a reader who had first-hand experience struggling with the high cost of living. She gave me permission to share her story:
I had been saving about 40% of my relatively modest salary for eight years. I had built up an emergency fund as well as a good sized savings…and then we had kids.
We lost our rent-stabilized apartment right after our children were born. We live in New York City, and while I maintain that there are many things about the city that are actually very budget-friendly (public transit and free entertainment top my list), the cost of rent and daycare in NYC are over the top.
In one year, the cost of a market-rate apartment in our neighborhood plus two kids in daycare ate into my hard-earned savings. By the end of the year, the pot of money that I had worked so hard to save was down by almost $50,000.
Luckily, my husband and I have never carried any kind of debt and had already been living well below our means before the kids came along. But that also meant there was very little fat left to trim in our budget other than rent and daycare expenses. (We’d already dropped the landline, never had cable, cooked almost all of our meals at home,…
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