5 Ways Moving to a Low Cost-of-Living Area Can Cost You More
Amid rising inflation and stalled salaries, many are relocating to cities that boast a low cost of living. Sounds like an excellent plan, right? It can be – but only if you analyze the big picture very closely and consider potential financial drawbacks.
We spoke with financial experts to find out five ways moving to a low cost-of-living area can actually cost you more.
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1. Your Low-Cost City Could Also Have Low-Paying Jobs
The biggest pitfall of moving to a low-cost area, according to Cody Schuiteboer, president and CEO of Best Interest Financial, is the decline in income that often comes with it. This can really derail you financially.
“People see that they earn $140,000 in a high cost-of-living area while doing the same job in another place for only $95,000 and assume the 30% decline in housing cost makes up the difference. It doesn't,” Schuiteboer said.
A drop in income affects not only your current financial situation but your future retirement. Lower-paying jobs also typically mean lower 401(k) contributions, because you’re making less to invest.
“Do the math with lifetime earnings and 401K contributions, not monthly housing numbers,” Schuiteboer said.
2. You May Have Higher Home Insurance Rates
Most low cost-of-living areas tout affordable homes, but do they also have affordable home insurance? Maybe not.
An example: You may be considering a move to the South or the Midwest to save money on housing but neglect to factor in what could be staggeringly high home insurance rates.
“Insurance rates tend to be far higher in many South and Midwest locations because of increased risk of weather-related damage,” Schuiteboer said.
3. Property Taxes Could Be Higher
Moving to a low cost-of-living area may enable you to buy a bigger house. But buyer beware: Property taxes could be much higher than what you pay for a small house in a pricier location.
“Property taxes tend to be based on both value and lot size, so that bigger piece of property ends up costing more each year,” said Jeff Judge, CFP, AEP, ChFC, CLU, managing partner at Chesapeake Financial Planners.
4. Public Transit May Be Lacking
When deciding whether to move to a lower-cost area, keep in mind the seemingly little things that can make a big financial difference – like the time and cost of your commute.
AJ Schneider, founder and financial coach at Beyond The Green Coaching LLC, sees people moving farther from pricey cities to cheaper areas to save a few hundred dollars a month on rent, only to end up spending more on their commute. She would know; it happened to her.
“When I was in my early 20s, I decided to take an apartment because it was $100 less per month, but the commute was miserable, and I ended up taking a taxi to and from work,” Schneider said. “I paid around $300 a month on taxis.”
5. Many People End Up Moving Away Only To Move Back Later
You may feel ready to accept the clear financial risks of sneaky expenses that can pop up in a low cost-of-living area, but be mindful of the risk of homesickness or just plain unhappiness in your new location. A lot of people make the move to a cheaper place only to move back to the pricier city they came from.
“About 30% of people that I've counseled to relocate eventually decide they need to move back after three to five years of living in a lower cost-of-living environment,” Schuiteboer said. “Two sets of moving costs alone ($8,000 to $10,000 for buying and selling the property and paying real estate commissions twice), double relocation expenses and returning to their starting point where prices increased in the meantime make this option very costly.”
Schuiteboer’s point about costs going up in the city you came from is critical. You may not be able to comfortably afford to live where you lived before.
“People moving from a $600,000 metro area for four years may discover that prices there increased by 25% which locks them out of the original neighborhood,” Schuiteboer said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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