Deciding where to settle down next can be a difficult decision. If location is not a requirement for your career, it might be best to factor in both HCOL and LCOL areas into your decision-making process.
Here is a guide to choosing between HCOL vs LCOL and some things to consider when looking for a place to settle.
Whether you’re looking to move up in your career or simply trying to make ends meet on a budget, the high cost of living in a HCOL area can quickly become too much for most people, especially those who live on tight budgets.
But how do you know whether it would be better for you economically to stay put in your current location or relocate somewhere else? The answer may not be immediately apparent, but this HCOL vs LCOL breakdown below should help you figure it out.
HCOL vs. LCOL: What Does It Mean?
HCOL stands for High Cost of Living, and LCOL stands for Low Cost of Living. These terms are referred to when describing the average cost of living in certain areas. Oftentimes the average household income and individual yearly income are directly related to the cost of living for the area worked in. This is because employers want to ensure that their employees earn enough money to live within the same neighborhood or same city they work.
When it comes to HCOL vs. LCOL areas, high-cost areas are more expensive than low-cost areas. HCOL is usually associated with large metropolitan cities like New York City or Los Angeles, while LCOL refers to rural locations where living costs are much lower.
HCOL areas are also known as “costly cities” simply because they are more expensive to live in than other places.
HCOL rises considerably when living costs for these significant metropolitan hubs are compared to smaller HCOL-area towns where people make roughly the same salary but spend much less on their monthly expenses.
On the other hand, LCOL areas are places where the cost of living is much lower than HCOL, making them a more affordable option for people with limited budgets.
Living in a LCOL city can stretch your budget and allow you to live a decent quality of life at a much lower price point.
If you’re currently living paycheck to paycheck, moving to a LCOL city could allow you not to have to anymore.
What About MCOL?
MCOL or Medium Cost of Living usually indicates mid-sized and small-sized cities that are slightly cheaper to live in than high cost of living areas.
An MCOL area could be another option to consider when deciding where you would like to move to next. If choosing between HCOL vs LCOL is difficult for you, a MCOL area might be the perfect compromise.
Reasons for Cost of Living Price Difference
In larger cities, such as New York City, San Francisco, etc., the cost of living is more inflated than in other areas simply because more people want to live there. With a dense population comes higher housing prices, more costly transportation, food, gas, and more.
Areas nearby beaches tend to cost much higher because living near the water is incredibly desirable for most people. However, owning or even renting beachfront property comes with a high price tag.
However, the high cost of living areas is great because they have everything an individual could want: great employment opportunities, a beautiful and fun environment, easy access to nature, lots of entertainment, great restaurants, etc.
So you do get many benefits for living in a HCOL area, but those benefits can be costly. Plus, a lot of LCOL areas have wonderful benefits as well at a much lower price point.
That is why it is super important to research each area you’re interested in thoroughly before deciding.
HCOL vs. LCOL Examples
HCOL and LCOL areas can be found worldwide, but some places have significantly more HCOL areas than others, like California or New York.
Whereas living in a low cost of living area such as Michigan or Missouri will give you much more bang for your buck.
If you want to start your research about HCOL vs. LCOL areas but are not sure where to start, here is a list of some examples of both HCOL vs LCOL to get you started in your decision-making process.
Where Are the Cheapest Regions to Live?
The following states have the lowest cost index in 2021, according to World Population Review. These states offer LCOL cities which generally means a lower down payment for home purchases. Unfortunately, it can also mean the job market in these states is less than ideal. However, that doesn’t mean you can’t find high-paying jobs in some of these states.
- New Mexico
Where Are the Most Expensive Regions to Live?
The following states have the highest cost index in 2021, according to World Population Review. These states often have big cities where the anticipated housing cost are generally higher. Unfortunately, this can lead many people to become house poor, regardless of having access to more jobs with a high-income potential. Many of these states have adjusted salaries that match the cities where the jobs are located.
- New York
- New Jersey
- Rhode Island
Is It Worth It to Move From HCOL to LCOL?
High cost of living areas offers a higher quality of life, more amenities, and typically a safer environment.
Residents of HCOLs also generally have higher incomes and better education levels than those who live in a LCOL city. In addition, the average rent is generally much lower in LCOL areas, as house prices usually come with less potential income.
However, having this more upscale and convenient way of life comes at a high cost that may not be worth living paycheck to paycheck.
LCOL areas also offer an excellent quality of life and many wonderful amenities at a low cost. You just need to know where to find them.
However, LCOL areas tend to have a bit more crime than HCOL, so that is something to keep in mind when deciding where to move. Be sure to check the crime rates of the areas that you’re looking into because you do not want to move into an area that is not safe.
Finding one location that offers low crime and above median income potentials is generally considered to be the sweet spot for those retiring early.
When deciding whether or not to move from your current HCOL area to a more affordable LCOL city, you just need to look in-depth at HCOL vs. LCOL areas and weigh the pros and cons.
Can You Achieve Financial Independence Living in a HCOL Area?
Although not impossible, it can be challenging for residents of HCOLs to achieve financial independence.
Since HCOL areas come with a more expensive cost of living, money tends to go much faster than it would elsewhere, making it difficult to have a good amount of extra money to save or invest.
Unfortunately, many HCOL professionals find themselves living paycheck to paycheck, no matter how high their salaries may be.
Depending on how much money you expect to live off of in retirement, though, you may be able to make a high cost of living area work for you depending on your current monthly expenses.
You can grow your net worth exponentially by moving to a low cost of living area.
When you maintain your current earning power and move to a LCOL area, not only can you increase your savings, but you can also put yourself on the fast track toward financial freedom.
HCOL vs LCOL Area Pros And Cons
Both HCOL and LCOL have pros and cons, but HCOLs often represent a higher quality of life, better schools for the kids, more opportunities, and better job prospects.
However, LCOL can offer many of these benefits if you find a great area, and in these low cost of living areas, those benefits will cost you much less.
HCOL homes tend to cost more than those in LCOL areas. However, employment opportunities can be highly competitive with salaries for similar jobs in LCOL areas in high cost of living areas.
Since a HCOL is not as affordable as a LCOL, choosing an area you can afford might require sacrificing some great HCOL benefits.
It can be challenging to decide where to live if the location is not an essential factor in your career choice.
Read through the pros and cons of HCOL vs LCOL below to help you get started.
HCOL Area Pros
HCOL areas are typically higher-income communities where the average salary is more than $60,000 a year. However, the high cost of living areas also has high food and housing costs, among other things.
Living in HCOL areas can be a great way to make more money and live a more convenient lifestyle. High cost of living areas also has other benefits such as lower crime rates and better public transportation or ride-sharing services.
HCOL areas are usually highly sought-after cities with many great amenities or coastal towns with easy access to beaches, other natural attractions, and other perks.
Quality of Life
The definition of a quality life varies from person to person, but there are a few key points when looking for an area that will help you achieve a higher quality of life.
You typically want to look for easy access to various forms of entertainment such as museums, theaters, sports, and events. You also want to look for cities that have great restaurants, walking and biking trails, parks, churches, and more.
Higher Paying/Better Jobs
On average, high cost of living areas tends to offer jobs with higher paying wages. Even certain areas provide higher salaries for specific fields than are provided in the rest of the U.S.
For instance, if you’re in the tech industry, California would be an excellent HCOL area for you to pursue as it is the central hub of Silicon Valley.
Making sure that you find a job that will allow you to afford a HCOL area while still having money left over each month is key to choosing where to live.
In HCOL areas, there tend to be better opportunities and easier access to resources and conveniences such as medical services, high-end shopping, higher quality grocery stores, activities for kids, bars and lounges, and more.
Famous musical artists, comedians, and other performers also come to larger HCOL cities more often.
Plus, higher cost of living areas tends to offer fast and easy access to international airports and other means of travel.
HCOL areas are often called “cities that never sleep” because the opportunities for food, transportation, and entertainment are seemingly endless at all hours of the day and night.
You will never get bored in a HCOL area as there is always something to do.
In larger cities with a higher cost of living, you will usually find much better and higher-quality schools.
There tends to be a higher instance of college graduates in high COL areas, which means well-educated teachers for your children’s schools.
Therefore, if quality education is important to you, settling down in a HCOL area may be a great choice, especially if you have children.
HCOL Area Cons
Some cons of living in a high COL area include a higher cost of housing, food, and other things like entertainment and clothes shopping.
While there are many great reasons to move to a HCOL, just be mindful of the cons listed below before deciding.
As the name states, the high cost of living areas is obviously higher than the low cost of living areas.
You can live in a HCOL even if your salary isn’t high. It can be done, you will just need to stick to a budget and be more careful with spending your money.
Income Not Always Offset
Although higher-paying jobs are often plentiful in HCOL areas, those jobs, unfortunately, are not always available to absolutely everyone living in those areas.
If you’re unable to offset your cost of living in a HCOL with a higher income, it may be more difficult for you to save money which means you most likely will end up living paycheck to paycheck.
One way to ensure that this does not happen is to make sure you secure a high-paying job in your desired area before beginning the moving process.
More Difficult to Find Homes
Housing is definitely more expensive in HCOL areas. Therefore, when initially starting a home search in your desired area, you may come down with a case of sticker shock.
Finding affordable homes can be extremely difficult in higher cost of living areas, but it is not impossible.
It just takes a bit of creativity and ingenuity to look for housing subsidies or other ways to expand your housing budget. But, of course, working with an experienced real estate agent would be helpful as well.
LCOL Area Pros
LCOL areas are typically lower-income communities where the average income is less than $60,000 a year.
Also, low cost of living areas have a cheaper cost of food and housing, but they also have more crime rates on average, so that is something to be aware of when researching your new home.
One of the many advantages of living in a LCOL area is the slower pace that life tends to move there.
There is less of the hustle and bustle and more of a relaxing, go-with-the-flow, friendly and neighborly atmosphere.
You don’t feel like you’re constantly on edge and having to rush around. Instead, you will feel like you can stop, look around and take a breath of fresh air once in a while.
As the name states, a lower cost of living area offers just that, a lower cost of living. This makes LCOL areas extremely attractive to move to.
This is especially true when you’re looking to purchase a home. The home prices in LCOL areas are very affordable compared to the home prices in HCOL areas. So you can get a much larger residence for much less money.
LCOL areas also tend to benefit from lower taxes as well. They typically have lower income taxes and lower property taxes. In addition, some states, such as South Dakota and Texas, actually have no state income tax at all.
You will also benefit from cheaper food, entertainment, gas, and more in LCOL areas.
Geo Arbitrage can be a great way to get the most for your money and still keep up with all of life’s expenses.
It involves moving to a low cost of living area while continuing to earn your current income either through retirement funds, a remote position, or self-employment.
Keeping the income that you earned while living. In a HCOL area when moving to a LCOL area is like getting a hefty raise without switching jobs as your money will go much further in a low cost of living area.
LCOL Area Cons
Although living in an area where you can stretch your dollar much further and not have to live paycheck to paycheck sounds like a no-brainer, there are a few downsides to being aware of.
Potential Lack of Jobs
When moving to a lower cost of living area, keep in mind that finding a good job could be a bit difficult. This is especially true if you’re looking for a higher-paying job.
Although your overall expenses will be cheaper while living in a LCOL area, you still need to have enough income to cover everything, plus leave extra for savings.
Unless you already have a good income coming in via remote job, self-employment or retirement, this can be a bit difficult to achieve.
Potential Lack of Amenities/Resources
Cheaper is not always best when it comes to quality of life. Even though you will most likely be saving money by moving to a LCOL area, you may be sacrificing some of the nice amenities and conveniences you have become accustomed to.
Many lower-cost living cities do not have a large variety of restaurants and entertainment, and public transportation and ride-sharing services are often slim to none.
Depending on the poverty level of the area you’re moving to, you could also end up finding yourself in a food desert area.
A food desert is an area where residents have minimal access to healthy and affordable food.
Residents of LCOL areas are often forced into low-quality fast-food restaurants simply because they can’t get to any other place without driving long distances. In addition, healthy convenience stores and supermarkets are very limited in certain areas.
Cheaper is not always better for food, as your health is more important than saving a few bucks.
Factors to Consider When Choosing Where to Live
When deciding between LCOL vs. HCOL areas, you shouldn’t only consider cost, even though that is a huge deciding factor. It is also essential to consider other important financial and personal factors.
For example, you need to analyze your earning power to decide which area you can afford to live in comfortably.
It would help if you also considered factors such as taxes, education, the quality of life you will live in each area, how far away you will be from friends and family, access to reliable transportation, and more.
Research the cost of living for each area that you’re interested in moving to. Look at the housing market in those areas to see if many options are available for housing and affordable costs.
When doing your research, you also want to make sure that you will be able to live comfortably on your income and not live paycheck to paycheck. In addition, you want to make sure that you will still have a good amount of money left over each month after expenses for savings.
How It Affects Taxes
Look up your desired living areas and see what their taxes are like. Specifically, look at property taxes as well as income taxes and make sure that they are affordable.
You also may want to look up the taxes required to pay for registration if you own a vehicle.
When looking for a new area to move to, you will want to find out if there are things that you will enjoy there. Saving money is great, but if there are no fun hobbies or anything else in the area that you particularly enjoy, you may find that living there is not very pleasurable.
Decide whether being close to family and friends is important to you. Or if you will be able to travel home easily for holidays and other special events.
You definitely want to live in a place that you will love and that will make you happy. Of course, saving money is important, but your happiness is as well.
Be sure to find an area that fits your desired lifestyle. Change is good, but you will still want to have some of those familiar comforts of home as well.
Decide if you would be more comfortable in a big city or if you think you would feel more at home in the suburbs. Do you tend to love the hustle and bustle of a large city that is always alive? Or would you prefer the slow pace of rural life?
You want your new home to feel like home, so lifestyle preferences are just as crucial in deciding where to live as money is, if not more.
The Bottom Line
HCOL vs. LCOL is a decision that many people face regarding where they may want to live. HCOL areas are in large metropolitan cities, while LCOL places tend to be in less populated rural locations.
HCOLs typically offer more amenities and conveniences than LCOLs, but these can come with higher housing prices.
Moreover, LCOL areas can come with poverty levels that might not fit the lifestyle you desire for yourself and your family.
If HCOLs best suit your personality type or desired lifestyle, there are still ways you can save money when living in these areas.
For example, you can save money on groceries by using coupons at grocery stores near your home or buying items like toilet paper in bulk online instead of paying retail prices.
There’s no correct set-in-stone answer. You just need to weigh the pros and cons, decide which factors are most important to you and do what ultimately makes you happy.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.