You don’t have to start your adult life facing high costs and an imbalanced budget. (Getty Images)
Relocating gives you a chance to change your entire life, including your budget – for better or worse. So you ought to consider the financial angle of your next move before you make it.
“Moving is an opportunity to make smart decisions that can have a disproportionately large positive impact on your finances,” says Natalie Colley, a financial analyst with financial planning firm Francis Financial, based in New York.
First, you need to think about what you really want out of your new hometown, and that depends on your stage of life. New grads looking to launch their adult lives, new families hoping to lay some roots, new retirees seeking a nice spot to land after exiting the workforce or just anyone in want of a new start – they all need unique qualities from the places in which they choose to settle. “For retirees, they have to take very good care of what they’ve got, their nest egg,” says Bert Sperling, founder and chief executive officer of Sperling’s Best Places, a research firm focused on demographic data. “For young folks, it’s all about looking to maximize their opportunities.”
Indeed, young people often need to trade affordability for a good career start. Areas that are well-known as bountiful job markets are often equally notorious for high living costs. And so the purchasing power of your salary may not equate to as much as you think. “It’s absolutely critical to understand how far your dollar will go in the city you are moving to before you make any big decisions,” says Taylor Schulte, a certified financial planner based in San Diego. “A $50,000 salary in Tucson, Arizona, is not the same as a $50,000 salary in San Diego, even though it’s only a six-hour drive.”
He recommends using a cost-of-living calculator to crunch the numbers and see what kind of lifestyle you can afford in various places on your current income.
For another example, Sperling points to Silicon Valley. More specifically, Menlo Park, California, home to social media giant Facebook, has living costs an astonishing 329.7 percent above the national average, according to Sperling’s Best Places. In dollar terms, the median home value of the city is $1.6 million, compared with just $184,700 for the U.S., according to the U.S. Census Bureau.
So a job offer from Facebook might seem generous – the median income in Menlo Park (though not specifically at Facebook) is $126,045 a year, compared with just $55,322 for the U.S. But those big paychecks might still not let you make ends meet in that area.
That doesn’t mean you have to swallow those costs and survive on an imbalanced budget to start your adult life. “There are a lot of options these days that weren’t available just 10 or 15 years ago,” Sperling says. “There are tech hubs of opportunity all around. Don’t be afraid to look to other places.”
One example he highlights: Seattle. Home to the likes of Amazon, Microsoft and Zillow, this major metro area is a fine place to launch a tech career. And overall, it has a low unemployment rate of 3.9 percent, indicating a healthy job market across industries. “Seattle has grown remarkably in prominence,” Sperling says.
And though not cheap, it’s far more affordable than Silicon Valley. Living costs in Seattle are 76.5 percent above the national average. The median home value is $484,600, and the median household income is $74,458.
Since that is still pricey, see if you can bump up the income side of your budget. “If you are headed to a city with a higher cost of living, ask your current employer or new employer for both a raise to help make up for this and a stipend to cover travel costs,” Schulte says. “You might think it’s a big ask, but many employers understand the financial impact this can have on an employee and their family and are typically willing to help.”
Also consider looking further off the grid for job opportunities. “There are a lot of places that are sort of on the upswing,” Sperling says. “There are places that might be a little grittier. They’re undervalued, and they may do very well in the future. We like to call them opportunity cities.”
For example, he notes Boise, Idaho, where living costs are just 2.6 percent above average. “Maybe 15 or 20 years ago, it was just sort of a backwater, and now it’s become an increasingly cool spot to be,” he says.
Of course, you won’t find quite as many amenities such as restaurants, theaters, stores and museums in Boise as you would find in, say, New York City. So that’s a trade-off you’d have to accept in selecting a lower-cost area. And you might find your new city grows with you. Just remember that it also might not.
“You’re taking more of a chance on which way they’re going to go,” Sperling says of opportunity cities. “Places on the coasts are becoming unreachable, in terms of affordability, so people are willing to take a chance. They’re often young people because they don’t have much as far as resources, money, but they do have time, and they are willing to be urban pioneers, urban homesteaders.”
Along those lines, some people are considering Detroit and the Rust Belt cities, “where they have great infrastructure, but they’re really undervalued,” he says. In Detroit, you’ll enjoy living costs 27.1 percent below average. And in Pittsburgh, a major Rust Belt metropolis, living costs are 22 percent below average.
If you’ve already changed cities, you definitely have to reassess your budget. “The best way to keep on top of – and reduce – your spending is to track it,” Colley says. She recommends using a budgeting app, such as Personal Capital, Mint or You Need a Budget, and checking it every other day. “Don’t underestimate the powerful impact of awareness on reducing spending.”
Once you know where your money is going, you can make changes as necessary. “Your rent or mortgage is higher than it was in the previous city, and that might mean spending less on eating out or travel,” Schulte says. “It can also work the other way around, where you have more money in your pocket because living expenses are lower. If that’s the case, you can boost your savings and lower your tax bill by contributing to a retirement account.”