A Random Note on Cost of Living

May 26, 2023

I wanted to state a brief, obvious point. I think when most people think about the cost of living, they look at maps like this and think: it’s really cheap to live in the green areas and that’s good!

And maybe it is, but you always need to transpose it on a map like this and remember that it’s cheap to live where your annual income is lower. And that’s bad.

And that’s more interesting than we realize. That income map is very generalized. There are more six-figure and high paying jobs on the east and west coast and near major cities than anywhere else. And since everyone wants to live there, the cost of a lot of things is higher too. Like real estate.

But some costs don’t change that much. Your cell phone bill doesn’t vary based on where you live. If you buy a new car with a 5% loan, it will be the same in Idaho as it is in New York City. And anything you buy from Amazon has the same price (absent taxes) regardless of where you are and where it’s delivered.

It’s also worth talking about real estate. For most people, their houses are their biggest purchase and one of the largest forms of wealth they hold. A cheap house in a cheap area will have a cheap payment. And as the value increases over time, a cheaper house will tend to increase more slowly and sometimes at a slower rate.

Consider these two houses in Georgia and DC. The Georgia house sold in a bull market in 2008 for $145,000. 15 years later it’s on the market at $375,000. That’s a 6.5% yearly increase in value per year. On the other hand the DC house went from $1.1mm in 2014 to $2.5mm in 2023, an increase of just about 10% in value per year.

These are wildly different markets and this is just an anecdotal apples to oranges comparison. But the general idea holds: the family that has the opportunity for stronger jobs near a city and lives in a more valuable house will have both a relative and an absolute advantage in wealth when it comes time to make life changes once the kids are grown and out of the house.

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