Cost of living equation?

[jhonny9546]

Hi

Is living frugally in a high cost of living country better than living frugally on a low cost of living country?

Example:
We have city A, B and C.
City A (High)
- Cost of living >25k/y
- Salary > 50k/y
City B (Mid)
- Cost of living >12k/y
- Salary > 15k/y
City C (Low)
- Cost of living >5k/y
- Salary > 4k/y


We know that we live in city B, and we are very very frugal. We could live in city B with a Cost of living of 4k/y.

Given this, is it better to expat to a lower or higher cost of living country, knowing that we are not like the average person, but that we are very very frugal?
Which is the math we should do here in order to better calculate the cost of living and possibilities?
For example in a higher cost of living country we could live frugally + eventually get a fun job for 2 or 3 hours a day, just for fun, which we like, and which would definetly pay for entire cost of living, while in a lower cost of living country we could take a "remote" or "internet" job, for a better pay.

[Cranky]

You'll have to define "better" and clarify your goals.

[ixtap]

You'll have to define "better" and clarify your goals.

@Cranky beat me to it. This is not a mathematical equation, it is a personal values equation.

[jhonny9546]

what do you mean?

[former player]

Choose where you are going to be happy to live, and then see if you can make the finances work, would be my advice. Life is short, too many people make choices that make them miserable.

If you are happy in a place you can probably also live there pretty cheaply.  A lot of times people are spending money or eating badly or using drugs to hide from themselves and others that they are unhappy/bored/stuck etc.  If you are leading a happy and purposeful life all that superfluous spending goes away.

[lifeisshort123]

Depends on what you are hoping to do.

It is easy for people to move later in life from say the NE with a high cost of living to the SE with a low cost of living.  A lot of their cake is baked in terms of home equity having accrued nicely, social security payments being as robust as they can be, etc.

Moving from the SE to the NE can be, on the other hand, a bit more challenging.  At least in my sector, rarely do the increased wages equal the COL differential and you see your money will go further in the SE.

However, some people, due to their values, might be comfortable being retired in the SE, but not actively working, and/or raising kids in the SE due to the schools, political climate, etc.  Or, they might not be comfortable living in a more remote location for whatever reason.  So then it becomes a “values” and “lifestyle” equation.

I have yet to find a better place to live economically than Florida or Nevada, but those places might not be for everyone.  Also, as they have been booming, the value is decreasing, especially for young people starting out.

[Metalcat]

Where you live is a lifestyle choice. Cost of living is just one factor in determining the key aspects of that lifestyle.

Work is largely a lifestyle choice as well. People choose the work they do for many factors beyond money.

In the end, where to live and what work to do/not do are all highly complex, deeply personal decisions with complex decision matrices behind them.

I also challenge your concept that someone's salary is necessarily lower in LCOL areas. This entirely depends on the work.

Incidentally, with my credentials, I can actually make *more* money in poorer, rural areas than I can in major cities. Like several times more.

So the calculus is far from universal.

[Ron Scott]

Frugality is always a function of proportion.

You could know 2 men with seemingly identical lifestyles but know nothing about their frugality. One could be exceptionally frugal while the other severely constrained by his financial means.

[Loren Ver]

Okay, just looking at your premise, ignoring that all kinds of other life happens and just going by your equations, living in the high cost of living city while being frugal is mathematically better than any of the other ones, given none of the terms are defined.

Why?  You are being paid twice the standard of living you can achieve.  So, if you work for a sum of years, you can be done working and then go live in any of the other cost of living areas and never need to work again.  At any of the other cost of living levels, you are only a little above the cost of living so your ability to save is much slower by the limitation of you given equation.  And not proportionally so.

So, if all things being equal, just how much being paid and how much things cost are the only changing factors, then go to where you can get the biggest difference between the two.

As those of us on MMM know, spend less than you make, and invest the difference.  That is how you make early retirement (or financial security or whatever) happen.  The bigger the difference, the easier that is.

Loren

[lhamo]

Not enough data to say for sure.

We lived very happily and very frugally our first few years in China.  We were in a lower cost of living city.  Our housing was fully paid by our employer.  Top tier preschools were extremely affordable by Western standards.  We were surrounded by lots of nice affordable amenities -- shopping mall across the street with a huge supermarket (Carrefour) and lots of coffee shops, restaurants, etc.  Local style wet market a few blocks away.  No need for a car -- bikes, buses or taxis could take us anywhere we wanted to go (subway system was still under construction). 

But for various reasons we decided we wanted to relocate to Beijing.  Our cost of living more than doubled -- housing was more expensive and the employer allowance only covered part.  Everything else was more expensive, too.  And it was impossible to create our convenient living situation. 

REAL sticker shock didn't come until our kids needs outpaced the less expensive schooling options.  So for our last 2-3 years there we paid through the nose for expensive international schools.  The cost was more than my take-home for a well-paid non-profit management job.  It was worth it, but not sustainable.

In the long run I am glad we made the move to Beijing. We bought a condo that more than tripled in value so it worked out extremely well financially in the grand scheme of things.  Kids got the kind of education they needed at the time and it set them up well for future academic success.  Healthcare options were WAAAAAY better and we had good expat insurance to cover the bills at the expensive expat oriented private hospitals (lack of those in Chengdu was one big factor in wanting to move).

So I would say based on our experience a lot of the answer depends on factors like what composition and stage of life your family is, what healthcare or other special needs/interests you might have, whether you plan to or are able to buy property to make a longer-term base for yourself, etc. 

Inflation and currency changes are also a huge factor.  Not a big deal for a place where the currency is pegged to the dollar.  But our expenses also took a big hit when China changed its way of calculating the exchange rate, which IIRC more or less corresponded to our move to Beijing -- over a 6-12 month period the rate went from 8.6 down into the high 6s.  So a roughly 20% hit (we were paid in US$).  And inflation in China was running at about 8-10% average, and you could see price hikes on imported goods (including food) when the occasional tariff war or new regulation kicked in.

Oh -- another big factor if you are considering going somewhere with a lower salary is that if you do decide to move on it might be harder to get bumped up to a higher salary level in a new place if the places you are applying do not understand the cost of living differential.  And your raises in a lower COL/lower salary area are likely to be proportionately smaller so it is hard to catch up.

[jhonny9546]

Incidentally, with my credentials, I can actually make *more* money in poorer, rural areas than I can in major cities. Like several times more.

So the calculus is far from universal.

What's your occupation about?

[Metalcat]

Incidentally, with my credentials, I can actually make *more* money in poorer, rural areas than I can in major cities. Like several times more.

So the calculus is far from universal.

What's your occupation about?

I'm a medical professional. Some medical professionals do better in cities, some in more rural areas. It depends on supply and demand, just like everything else.

For example, there's one real estate agent in the rural region where my second home is. He gets double commission on every single house listed in the region and most showings are done virtually, so he just records a video walk through once and only serious buyers require him to actually do a live virtual showing.

He used to work in corporate sales in the largest city in Canada, but now makes more money putting in a small fraction of the effort in his rural community.

It all depends on the balance of supply and demand, and overhead costs. In more remote communities the overall demand may be less, but the competition can also be less or non-existent and the overhead can be infinitely lower if someone requires offices and staff.

The world of jobs is a lot broader and more dynamic than just salaried corporate jobs.

[Log]

Where you live is a lifestyle choice. Cost of living is just one factor in determining the key aspects of that lifestyle.

Work is largely a lifestyle choice as well. People choose the work they do for many factors beyond money.

In the end, where to live and what work to do/not do are all highly complex, deeply personal decisions with complex decision matrices behind them.

I also challenge your concept that someone's salary is necessarily lower in LCOL areas. This entirely depends on the work.

Incidentally, with my credentials, I can actually make *more* money in poorer, rural areas than I can in major cities. Like several times more.

So the calculus is far from universal.

^^

I have been thinking a lot lately (overthinking, in fact) about where I want to live, and cost of living frankly isn't a very high consideration at all. If I decide that an expensive place is where I'll be happiest living (which seems to be the case), then I'll find a way to make enough money.

I don't want to retire to a place I like less just because it saves me a few working years. I'll work as many years as I have to in order to make retirement work in the place I want to live.

To add on to Mal's point that "work is largely a lifestyle choice," I would likely feel differently if I was retiring away from 40 or 50-hour workweeks, but I chose my career in part because of the ability to make a livable salary on fewer hours.

To me, the income in different locations is definitely a larger consideration than the COL. If I want to make decent money and have a fast/easy commute, I have to live in a big city, close to downtown. I don't anticipate wanting to leave behind all my friends and community from my working years when I retire, so I want to build my career in a city that I really love, not one that I'm racing to escape.

[Fomerly known as something]

what do you mean?

I’m guessing similar to my life.  I’m living my better life in a HCOL area of the US than I was 2 years ago in a Medium medium low cost of living area.  The HCOL area just fits what I want better.  From the outside someone might think I’m living worse, (in a condo vs a house) but for me it’s actually the right fit.