Move, Save Money, Become a Multiple Millionaire -- All in One Step

Last month I wrote several posts on what I consider to be a great money saving tip: moving to a lower cost-of-living city. My thoughts were detailed on the following posts:

•Yes, Moving to a Cheaper Cost-of-Living City Can Make You Rich

•How Moving to a Cheaper Cost-of-Living City Can Make You Rich

•8 Cheap Places You'd Want to Live (And How to Find More)

•Top Jobs: Where the 6-Figure Jobs Are

Now, I'm fine with people living in higher-priced cities. Really, I am. That's a choice those people make for various reasons (what the city has to offer, family/friends live there too, specific occupation that can ONLY be done in that city -- which I don't buy, BTW, etc.) The net is, people make their own money decisions and have to live with them, and I'm cool with that. To show how cool I am with that, I posted How to Save Money While Living in a Big, Expensive City. See, I got off the "move" wagon for at least one post! ;-)

But what I don't buy is the "Yeah, I live in an expensive place but I also make much more money, so I'm doing just as well" argument/excuse. The truth is, yes, you may make more, but your cost-of-living is far higher than the extra amount you make in a high-priced city. Don't believe me? Then consider this piece from Money that lists the pay differences for the same job in different cities:

Pay Differences in 10 Cities (for two jobs, one paying $60,000 a year and another paying $90,000)

•National median: $60,000 -- $90,000

•San Francisco: $72,720 -- $100,890

•New York: $71,100 -- $102,060

•Los Angeles: $66,060 -- $96,390

•Chicago: $65,100 -- $94,680

•Wash., D.C.: $63,540 -- $94,590

•Houston: $62,640 -- $90,720

•Denver: $61,920 -- $88,200

•Atlanta: $61,860 -- $91,350

•Miami: $60,960 -- $88,560

•Milwaukee: $59,040 -- $89,100

Then, Money adds this comment which is exactly what I'm talking about:

Of course, in theory, a higher salary in one city may be expected to afford the job-holder the same quality of life as she could expect in the same position in a less expensive city. But it often doesn't due to the effect of taxes and local inflation rates.

To put some numbers to this thought, I did my own analysis to determine which was better -- a high-paying job in a high cost-of-living city or a lower-paying job on a low cost-of-living city. I did this by doing the following:

•I went to Sperling's Best Places and typed in each city.

•I clicked on the cost-of-living link for each city which gave me an index of how the city compared to the national average in costs.

•From there, I adjusted the national median salary of $60,000 (I didn't do this analysis for the $90,000 a year job) to what it would need to be to break even in each city.

•I then subtracted what the person needed to earn (based on costs) from what they do earn (based on the salaries above) to see if they were ahead or behind financially by living in that city.

I know, it sounds confusing. So let's do an example. Here's what I did for San Francisco (SF):

•Sperling's says that SF indexes at 207.7 versus the U.S. average of 100.0

•This means, someone in SF needs to earn $124,620 (2.077 * $60,000) to earn as much as the $60,000 median national average salary

•But the average SF employee for this same job on earns $72,720.

•Hence, someone living in SF, though he makes almost $13,000 a year more, is actually down $51,900 ($124,620 - $72,720) versus the average U.S. worker.

Now that you know what I did, here are the numbers for all the cities, ranked from the best to the worst:

•Houston: $13,620

•Milwaukee: $5,760

•Atlanta: $4,500

•Denver: -$5,760

•Chicago: -$18,480

•Wash., D.C.: -$18,900

•Miami: -$20,760

•Los Angeles: -$26,280

•New York: -$32,280

•San Francisco: -$51,900

So, let's see what these numbers say:

•Houston is the winner if you're looking to maximize your income-to-cost ratio. Versus the national average, you're $13,620 per year better off by living in Houston.

•SF is the loser. You're $51,900 worse off versus the national average by living in San Francisco.

•Now, think what would happen if you moved from SF to Houston with the same $60,000 national median salary job. This means you'd go from a salary in SF of $72,720 to a salary in Houston of $62,640 (more than a $10k cut in pay) but because of the cost of living in each city, you're $65,520 better off each year!!!! Now, take that over 30 years at a 8% return and it's $7.4 million!

Ok, numbers can lie (a bit), so let's cut that in half -- you still have $3.7 million more! Is it REALLY worth that much to live in an expensive city?

Now, what if you could switch to a lower cost market and keep the same salary like this guy (read all the way through) Then you'd REALLY be in the money! ;-)