When It Makes Financial Sense To Relocate
The Great Resignation (AKA the “Big Quit”) of 2021 is the incredible phenomenon driven primarily by millions of Millennials and Gen Zers who have been quitting their jobs in droves. COVID-19 has forced many employers to offer work-from-home benefits. So, employees have increasingly enjoyed better work-life balance and flexibility to do things on their terms. With employers seeking to reverse that trend by requiring employees to return to the office, employees are opting out by seeking other opportunities that allow them to continue to enjoy their work-from-home privileges permanently. And with millions of workers seeking to stay or become fully remote, why continue to live in a HCOL (high cost of living) city? Maybe it makes financial sense to relocate to a cheaper area and get a bigger bang for your buck. Let’s dive in!
California’s Mass Exodus
One effect of the Great Resignation includes hordes of people relocating around the country. California, for example, has had more Californians fleeing the state than those coming in nearly every year for the past decade. Some of the top reasons include:
Cost of living
Housing housing housing!
Most things just cost more: restaurants, groceries, gas, etc.
Taxes and incentives
State with the highest income taxes
Few business incentives
Political climate
Typically seeing more conservatives leaving the state
Income inequality
Quickly becoming a state only for the highly educated and wealthy
Largest homeless population
Traffic & infrastructure
Plentiful job opportunities and larger & larger cities, but roads and other government-run infrastructure simply can’t keep up.
Where are Californians going?
Texas
Arizona
Nevada
Washington
Oregon
Colorado
Looking at the list, though, the hottest destinations aren’t necessarily that cheap. It really depends on the city. Dallas and Austin, for example, are quite pricey. Homes can easily cost half a million to a million dollars. Then you have to add a whopping 2-3% annual property tax bill on top of that mortgage! Seattle is another interesting data point because many folks are moving there for high-paying jobs that they hope will combat the city’s high cost of living.
In general, it seems that Californians are taking their high salaries and/or higher-than-average bank accounts to cheaper areas where they can afford to buy bigger homes, lower their costs, and avoid highly stressful commute times. And California is not alone here. Other expensive areas like New York and Chicago are also seeing parallels.
When It Makes Sense to Move
Politics aside, I think it comes down to expenses. And when I think of expenses, the first thing that comes to mind is budgeting. By and large, I think the largest part of most people’s budgets is housing.
Housing is everything. When property values are stretched to the sky, small businesses pass their rising rents to their consumers, home buyers have to fork over huge amounts of cash as down payments and their mortgages drastically reduce their monthly cash flow overnight.
So for most, the question of when it makes financial sense to move is answered by first asking yourself how much you could be saving on housing. For example, my annual housing budget for my nearly 50-year-old home is $108,000, which is insane. That’s basically equivalent to a down payment on a house in the majority of the country every single year! Instead, if I owned a brand new home that’s physically superior in pretty much all categories in a much cheaper city, I could easily cut my housing expenses by at least ⅓, to around $73,000 per year. Why? My mortgage would drop by over $1,000 per month, I wouldn’t need a $15,000 annual home improvement budget anymore, and property taxes would drop by at least $5,000 a year.
If I were to oversimplify the savings of moving to a cheaper area and assume that my entire budget would drop by ⅓, then my $180,000 annual budget drops to $120,000 a year. That’s a ton of savings. Cutting back expenses by that much more per year is likely a much faster route to increase my cash flow than trying to earn that much more (after taxes) per year, especially in passive income.
Who Can Realistically Move
Let’s face it. It’s expensive to move. So while households that have low incomes would benefit the most from moving to cheaper cities, it’s actually harder for them to relocate.
Realistically, I think the middle and upper middle classes are the ones who are more likely to make the move. They can afford it and have lots to gain from it. The wealthy don’t really need to move. They’ve already “made it,” so to speak.
Empty nesters are also prime candidates to move because they’re likely living in a home too big for just the 2 of them, and their kids could now be living halfway across the planet. In selling their (likely) highly appreciated homes, they could take advantage of the home sale tax exclusion rule (pay $0 taxes on $500K of the home sale profits) and easily buy a home all-cash elsewhere.
It’s a toss-up for younger workers who have a high earning potential, like software engineers in the high tech industry. By moving to a smaller tech hub or maybe entirely away from one, if they go fully remote, they may be stunting their career growth. That’s not to say a fully remote career is a surefire way to hinder your potential, but not too many companies have hopped aboard the fully remote inclusive work environments quite yet. Perhaps they will in the not-so-distant future. But today, opportunities will remain limited, and pay cuts to fully remote employees are a popular theme.
Stay Tuned
The thought of relocating to a cheaper area has certainly crossed our minds and the topic always seems to surface from time to time among our friends and family alike.
Deciding if moving makes sense to you will certainly be a personal one. Examining how much in expenses you’ll be saving is a major part of the equation. However, while finances play a huge role in such a decision, there are so many other factors to consider.
Be sure to subscribe below and stay tuned for a major life update from me in the coming weeks!
