HCOL vs LCOL

https://www.nerdwallet.com/cost-of-living-calcula…

Do you guys prefer living in a cheap or expensive area?  I like life in NYC a lot more, like many people, but it seems like there's no way to justify the living expenses.  Obviously, a lot of the weight in this algorithm is from the cost of a house and it's unrealistic to want to own a home in SF or NYC, but still.  What are your thoughts on this?

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Comments (88)

  • Analyst 1 in IB-M&A
Oct 10, 2021 - 9:42pm

Life still has to be lived. Foot the bill while you're young to LIVE in a HCOL then settle down with the wife and kids (e.g buy your first home) in a LCOL. Simple.

  • Analyst 1 in IB-M&A
Oct 11, 2021 - 2:24am

I think that's up to individual preference. Could be simpler to be in a suburb near a HCOL in terms of professional network ties - but if you culturally like LCOL states/regions of the U.S. that's not off the menu

Oct 11, 2021 - 4:07pm

Going to let you in on a secret - living in suburbs of a HCOL area is the dumbest fucking thing you can possibly do.

The argument always boils down to HCOL = more things to do and around higher caliber/ambitious people. This is absolutely true if you live downtown NYC, Chicago, SF, etc. LCOL = a lot cheaper and more lifestyle flexibility, but less top tier employers, entertainment options, etc.

Suburb of a HCOL is the worst of both worlds. You live in an affluent suburb in New Jersey, New York, outside Chicago, etc. and it is absolutely NO different than an affluent suburb outside Indianapolis, Kansas City, Columbus, etc. outside of the ridiculous price tag. Same access to top private schools if you are into that. Same access to high caliber individuals. Same level of entertainment/dining options (lets be real how often are you and your wife taking the 80 minute train into the city for a night on the town). But far less taxes and far cheaper.

Live in HCOL if you want - I have at times in my career and it's great. But only if you are in the downtown area with high walkability, able to interact with others, etc. If you live in suburbia in an expensive city then man - grade A mistake. 

  • Analyst 1 in IB - Gen
Oct 11, 2021 - 12:00am

I'd wager a lot of the unhappiness on this forum would be somewhat mitigated by people working in a LCOL. The argument that the amenities of a city like NYC outweighs all else doesn't hold much water when you are working 70+ hours of the week. Why not literally have a pay raise to live in a nicer apartment/house and arguably better WLB at most places. I guess the tunnel vision of exit ops has kids still funneling themselves up to NYC every year regardless. 

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Oct 13, 2021 - 5:48pm

I live in a LCOL city in a nice apartment in a luxury building, but would prefer paying the same rent in a shitbox in the East Village. I absolutely love NYC and everything it offers. I don't think your HCL to LCL theory is true.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 11, 2021 - 12:08am

It's not binary. Just don't live in NYC / SF (and maybe a small handful of others like LA / Boston / Seattle)

Literally everywhere else the COL is significantly lower / reasonable where you can still be in / near an awesome city -- thinking places like Chicago / Austin / Denver / etc  

Oct 12, 2021 - 10:52pm

Chicago rent is confusingly cheap, but the sky high taxes in illinois for cook county and city taxes is absurd when you get hit three times. Rent is far cheaper, but everything else is on par to nyc standards in terms of expenses. 

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!
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  • Investment Manager in HF - Other
Oct 13, 2021 - 12:08am

This isn't true based on almost all the data you can find (cost calculators, etc). While that data isn't perfect, basically any way you cut it, nyc is more expensive (excluding rent - not that this is a competition, I wouldn't mind it being cheaper). 

Chicago does have slightly higher sales tax, but it doesn't make up for the higher cost of goods/food/etc in nyc

As for income tax, Illinois has a flat income tax (I believe 4.95%), while nyc is at ~6.3% (marginal rate, although you hit 5.9% at very low income levels) at the analyst income levels and that isn't accounting for the NYC tax (which starts at 3%)

I do agree with you that housing is an outlier in the comparison. In general the price differentials (utilities, transportation, food, etc) are more around 20% or so between the two cities, while the rent differences are massive. I just don't think it's fair to say outside of that the two cities have the same costs (it may just feel like that since those 10-30% differences in a meal or night out doesn't hit you as hard). 

Oct 11, 2021 - 7:50am

I have lived in the NYC area my whole life but never in the City itself.  The cost is high and I dislike the density of population. Try getting from the 50s to Penn at rush hour (pre pandemic). I know the City is great for younger people but I have always preferred the suburbs of the City. 

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Oct 11, 2021 - 8:43am

I feel like HCOL is nicer when your younger since typically there's a lot more to do in those areas and a lot going on, then as you get older and kind of wind down probably nice to save your $ and chill in a LCOL area.

Oct 11, 2021 - 10:00am

I recently moved from an insanely expensive D.C. suburb (arguably, the coolest, nicest neighborhood in the D.C. suburbs) about an hour away to a really cool historic town that is way cheaper. I bought my house for $415,000 (though if you took it 3 blocks off the main drag it would be, like, $275,000). If you relocated my house to the neighborhood I moved from it would be $1.5 million. The area's salaries do reflect the lower COL, but you could definitely get by here on one income. Not really normal in the expensive COL neighborhood. That radically changes one's lifestyle/approach to life.

I think if you can find a really cool smaller town, you might hit the jackpot with lifestyle/COL. 

Array

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Oct 11, 2021 - 6:46pm

So you basically moved from Arlington to Alexandria.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 11, 2021 - 6:48pm

Nevermind Alexandria is not an hour away. Manassas? 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 11, 2021 - 6:05pm

I prefer NYC to any other city except for SoCal is a close second. On the beach in the southeast probably third preference.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 11, 2021 - 6:21pm

Unless you're looking to buy a house, there's really no harm in signing a 12 month lease in NYC/SF/LA and then lateral end of year if you don't think the costs are worth it. 

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  • Associate 3 in PE - LBOs
Oct 11, 2021 - 7:50pm

Build the life you want - it's easy to get caught up in optimizing profitability if you work in this industry, but there's so much more to life than the bottom line. I spent the first few years of my career in a MCOL city with a high savings rate and then left for an expensive coastal city. I don't ever see myself going back, because the life I live here aligns so much more closely with what I like to do. Plenty of people go the other way, and I'm happy for them as well - I hope they find what they're looking for. I'm lucky enough to be in a place in life where I don't need to worry about saving the marginal dollars... sure, taxes and rent are high, but I still drop six figures in the bank every year and get to enjoy myself in a thriving metropolis.

From a financial perspective I probably shouldn't ever drink, dine out, go to shows and sporting events I can watch at home, etc., but for me it's no longer about "justifying" the expense - same reason I shop at Whole Foods, stay in nice hotels, and prefer upscale cars, even though I don't need any of them; I want it, I can reasonably afford it, so I do it. By the same token, if you want to move to a LCOL city, or a suburb, or a rural cottage, go for it. Most people make sacrifices because they need to... through some combination of luck, work ethic, and acumen (mostly in that order), I have the optionality to splurge where I want to (within reason), so I live where I want to and how I want to

Oct 12, 2021 - 2:01pm

people here talk about living in HCOL place first and then moving to LCOL to settle down with wife and buy a house, but I'm actually thinking about living in LCOL first and accumulating wealth and then moving to HCOL and living off of my wealth in HCOL place. what's the benefit of being in NYC in your 20s if you can't afford to take a girl out cause half of your paycheck goes to rent and drinks cost like $20 per drink? you won't get any pussy anyway cause the girl will think you're cheap when you try to budget and then you take her back to your studio and she thinks you're a broke ass. it's better to spend your 20s in Chicago, build a $1M portfolio of stocks / real estate, and then go to NYC in your 30s and not worry about cost of drinks when you take a girl out, and take her back to a nice 2bd luxury apt in Manhattan, and you can pound her pussy all you want. just some alternative thinking.

Oct 12, 2021 - 2:34pm

You accumulate wealth in a HCOL city by buying a place and letting it appreciate and then using the equity to buy in a LCOL place. Also, you take advantage of work opportunities in HCOL cities to make you more competitive for the highest paid jobs in a LCOL place. The other way around doesn't work.

Array

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Oct 12, 2021 - 4:35pm

if you can save for a NYC apartment down payment quickly out of school, then yeah, it's a good strategy. but because for NYC you need like $200k down payment, and you spend all money on rent while being an Analyst, it'll take many more years to save up on this down payment than if you lived in Chicago for a bit and saved there (and there you can buy real estate with $60k down payment, which is much more reasonable to save up for).

Oct 12, 2021 - 5:36pm

Yeah but is it realistic to own a house in NYC or SF as a college grad?  Most of the low hanging fruit is gone, and even in mediocre neighborhoods you have to pay a pretty penny.

  • Analyst 1 in IB - Gen
Oct 12, 2021 - 2:49pm

I don't think this is alternative thinking. I think this is actually common sense. All these people in finance, and I guess they are missing on the compounding effect of saving more money in your 20s rather than your 30s. Sure the two variables would be higher incomes later or the fun experiences of youth, but that assumes everyone stays along in banking/PE on the first point and who's to say you can really do the same things in your 20s as early 30s? Assuming you maintain your health and this probably applies more to males who break into banking right out of school. The reason this seems alternative in thinking is that most people don't want to delay gratification. 

Oct 12, 2021 - 3:09pm

I don't think this is alternative thinking. I think this is actually common sense. All these people in finance, and I guess they are missing on the compounding effect of saving more money in your 20s rather than your 30s. Sure the two variables would be higher incomes later or the fun experiences of youth, but that assumes everyone stays along in banking/PE on the first point and who's to say you can really do the same things in your 20s as early 30s? Assuming you maintain your health and this probably applies more to males who break into banking right out of school. The reason this seems alternative in thinking is that most people don't want to delay gratification. 

Salaries and job opportunities are reflected in COL, so in a LCOL area you are unlikely to have a job that allows you to accumulate materially more wealth than in a HCOL area. The classic example of how to leverage HCOL to your advantage is the Washington, D.C. effect. People from all over the country come here for job opportunities when they are young; with a substantial resume under their belt, they move to LCOL cities and move into management, which pays very well relative to the costs. Now they have high salaries and low COL. To do that in reverse would require an extraordinary stroke of luck (like, working for a family business or something).

Another example within the D.C. effect is my friend--he bought a house in the D.C. suburbs; 10 years later, he has enough equity to sell his house in the D.C. area and buy a house in cash in central Florida. THAT'S how you do it.

I'm another example. I have a D.C. area salary but I'm allowed to telework full-time so I moved to a LCOL city. Pre-pandemic, people would often move into management and then transfer internally to another city and keep their D.C. salary. 

Array

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Oct 12, 2021 - 10:56pm

The reason is because our culture, societal acceptances, and stigmas make living in a high cost of living city acceptable when you are young. Paying $1400 per person for 3 guys in a 2bedroom/3 flex in murrayl hill as a 22 year old is acceptable and not made fun of at that age. For me at my age, people would absolutely expect me to live on my own and preferable a 1br as oppose to a studio in a nice neighborhood. I'd be looking at dropping like $4000 for what i described. So that's why. 

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!
  • 1
Oct 13, 2021 - 12:24am

Actual "low cost" cities are places like Macon, GA or Topeka, KS and aren't really on white collar professionals' radars. LCOL means just that, it's not a blanket reference to places less expensive than Manhattan. 

Array
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Oct 18, 2021 - 4:32pm

All middle to high COL, all very cheap relative to NYC/SF; all very expensive relative to Macon and Topeka. 

Array
Oct 13, 2021 - 11:07am

I was one of those "geo-arbitragers" for much of my 20s that lived in cheaper markets with good opportunities (think major SE/TX cities) to maximize my salary/savings. To be fair, I'm also a CPA by background and make a lot less money than even a bottom bucket analyst (although, supposedly IB is the new Big 4, so damn it feels good to be a banker?) and sort of had to make those sacrifices. That said, I still think I can chime in on the pros and cons of living in both.

To be frank, I kind of wish that I lived in a Tier 1 city in my 20s and saved a bit, or even a lot, less. I wouldn't have done NYC/SF, because those are prohibitively expensive on the salary I was making, but I do wish I had lived in Chicago/LA, which are slightly more affordable cities that still attract a lot of young, talented people. Given I'm not from the South originally, I found it a lot harder to build a network out there, which is hurting me now at 30, and also found it much more difficult dating-wise (don't want to get into the why publicly, because it'll start a shit show ITT). 

Now that I'm 30, I'm basically priced out of NYC/SF for good, unless I want to make significant downward changes to my QOL, which I'm not willing to do anymore, so I'm kind of stuck wondering "what-if?". It's not to say that I'm doing poorly - because I saved and invested so well, my net worth is way higher than what a "lowly" CPA should have at my age. My advice though for people in very high paying jobs by 25 (i.e. IB, BigLaw, SWE) is to just bite the bullet and live in NYC for at least a few years to build your network and resume (network being most important IMO). And even if you're in a lesser paying field, I'd recommend at least going with Chicago or some other metro area that's large, cosmopolitan, and attracts people from all over the country, but won't bankrupt you either. You have the rest of your life to make money, but you only get your 20s once. Time is the most precious resource - never forget that.

Oct 13, 2021 - 11:31am

Loool. I guess I'll bite since this is just a response to my post and hopefully won't derail the main thread. As I mentioned, I'm not originally from the South and found it to be a bit of an insular place, which made it pretty difficult for me to meet new people in general. It's not like Chicago, NYC, etc. where people are constantly moving in and out of the city in their 20s/early 30s or full of people moving there without any prior connection for their career/in hopes of "making it". People already have their friend groups down there, which makes it really hard to break into social circles. The fact that people who are well-to-do down South tend to have a select few interests pretty much across the board also makes it even harder if you're not raised a certain way IMO.

The part that I didn't want to disclose publicly, given how sensitive anything race-related is on this site, is that I'm of Asian/Indian descent and found that I did notice my race more in the South than I did in other parts of the country. That's not to say people in the South are all inherently "racist" - I have a number of good friends down there who are white and I think the world of them. It's moreso IME that I needed a lot more "social proof" to have a great dating life down there, which isn't always easy for someone not from there to obtain for the reasons I mentioned earlier. 

Oct 18, 2021 - 1:43pm

-

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

  • 1
Oct 16, 2021 - 11:03am

Having lived in both 

HCOL 

pros: 

- More options as far as culture goes.

- Nicer housing. Sure, there are owners that won't bother doing anything at all, because they're just coasting on the rising housing market - but on average, I'd say that owners are more into renovating and fixing, as this gives a much higher ROI than in LCOL areas. 

- More diversity 

- Your house is an investment which could beat the market. 

- Usually easier to fly in/out of those areas, with major airports nearby. 

- Closer to high-end schools 

- More jobs, higher paying jobs, and just more options. Much more fluidity too - you could get fired / laid off, and be in a new position the next week. 

- Good dating scene 

cons: 

- You're stuck in the rat race for much longer 

- Perpetual renovations in the area. So there's always gonna be lots of noise and traffic, unless you live in some gated community, or in a mansion with lots of space. I guess this is more prevalent for city living. In cities like London, it's become a way of life. 

- Everything is more expensive. Not only the housing market. 

- Unless you're locked into a fixed-rate, volatility in your mortgage (adjustable) rate could easily affect / limit your spending habits, because you've so much more in debt. 

- I feel that there's more entitlement and conflicts going around, especially if you're in some kind of HOA. 

 LCOL

pros: 

- Cheap housing, so you could easily pay for your home upfront, or just it down in a couple of years. 

- Better / more options for outdoors activities. Depending on where you live, going for a hike could be 10 mins from your home - compared to a 2 hour drive, living in the city.

- More relaxed attitude all around, easy living. Things move much slower  (might not be optimal if you're the type of person that enjoys a fast-paced life!)

- Because you have less options, it kind of forces you to become more independent, and do things yourself. 

cons: 

- Your home could stagnate, or even depreciate in price. Less ROI on things like renovations. 

- Less options. This is quite noticeable when it comes to food, both restaurants and grocery stores. 

- More driving. In many LCOL areas public transport is non-existent, so you're dependent on having a car.

- Lower quality schools 

- Terrible dating scene (mostly in rural areas) 

- Less cultural events, with far few options. 

- Job market tends to be more 1-dimensional and restrictive. Smaller cities and towns tend to have a couple of major industries / employers that, and less so when it comes to prestigious/elite white-collar firms. 

Oct 18, 2021 - 1:47pm

a) Housing is typically nicer in LCOL cities if we are comparing dollars to dollars.

b) LCOL doesn't necessarily mean lower quality schools - there are lots of LCOL places with good schools.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Oct 18, 2021 - 2:01pm

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Oct 18, 2021 - 10:48am

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