The fastest way to get there is also the scariest
The path to being free and fulfilled is, for better or worse, tied to our finances. We work to cultivate better lives for ourselves and our families with the goal of one day being at peace with what we’ve built and enjoying the spoils of our labor (if we so choose).
The financial levers at our disposal to keep us on track usually fall into one of three categories: earning more, spending less, and investing wisely. All are undoubtedly pillars of improving our lives, but are also of the “slow and steady wins the race” variety. What about major “level-ups” we can take to escalate the process?
The 4th financial lever
Aside from winning the lottery or stumbling upon a massive inheritance, there is another major monetary road available in redesigning the terms you live by: changing your location.
Many of those actively seeking to redesign their lives for greater balance likely live in a high cost of living area like California or New York. If you’ve been fortunate enough to buy your home in an expensive area like that (or anywhere in which there has been considerable appreciation), the idea that you can sell that property and redirect the profits to buying a nicer home with all cash is gaining in popularity, but still surprisingly uncommon. Not to mention, you can likely move to an area with good schools for your kids, shorter commutes, and moderate weather.
As a hypothetical, if you’ve bought a home in the Bay Area any time since the housing crash in 2008 but before, let’s say 2015, chances are the appreciation has been significant. If the median home price in the Bay Area is now around $900k, a typical buyer from that time frame may be able to generate a cool half million in proceeds from selling. Taking that money to a cheaper city like Denver, Charlotte, Austin, or so many others can get you a beautiful home with everything a family or an individual could want. You may not get paid a San Francisco salary, but you won’t have a $5,000 mortgage payment either. The lifetime difference in choosing to invest the surplus cash from a relocation vs paying down a mortgage you can barely afford is literally millions. Owning your home outright also drastically reduces outgoing cash flow in the immediate term so you don’t need nearly as much to fully live your preferred lifestyle.
And don’t get me started on how much cheaper it can be to live internationally.
State income taxes are too often an afterthought for most of us. California’s highest bracket is over 13%, while 7 states (Alaska, Nevada, Washington, Wyoming, Texas, Florida, and South Dakota) pay no income tax and 2 more states (New Hampshire and Tennessee) only pay state tax on investment income but not earned income. Naturally, these states have to make money so they get you in other ways, largely from various sales taxes. But wouldn’t you rather get taxed on what you buy rather than what you make? Whether you spend or save, an income tax takes out a chunk, penalizing the fiscally responsible and fiscally irresponsible equally. Taxing on consumption, by contrast, gives you more control in how much you owe your government, and you can always choose a state of residence that grants you at least some of that control.
People often don’t consider state taxes until they retire, and their 401ks and IRAs don’t stretch quite as far as they had anticipated. It’s not just the weather that makes them flock to Florida.
What’s stopping you?
The numbers are clear, but why is a financially efficient relocation so difficult? The answer is almost always some combination of fear of the unknown and abandoning your social/family circle.
If you’ve lived in the same area for some time, you have friends there, perhaps some family, and maybe you even have kids who have started to build their own social circles. You might also have aging parents in the area who are only going need you more and more as the years pass. These are extremely difficult roots and obligations to let go of, but if you’re not willing to wait until age 65 to live on your own terms, it’s a sacrifice you have to consider.
What’s stopping me?
As I write this, I in fact live in the Bay Area and own a home with a wife and (for now) 1 child, yet I haven’t left and don’t necessarily plan to for many of the reasons above. I know the numbers check out, and I know I can manufacture financial peace and a high quality of life via relocation. That said, I have deep ties here and have been willing to pay a premium to protect them. However, knowing that the “nuclear option” of moving somewhere else all together is on the table and I am actively choosing not to take it, gives me greater perspective to keep working and stay focused – because it’s through nobody else’s choice but my own. If the time comes for a major lifestyle change, I’ll cross that bridge when I need to.