Underappreciated FIRE tactic.

There are many paths to Financial Independence/Retire Early with countless articles written about saving money, living below your lifestyle and investing.  However, one overlooked tactic is to simply move to an expensive location.  By expensive location I specifically mean cities and states where there are higher paying jobs.

To have any sort of secure, comfortable full retirement generally accepted wisdom is that you will need at least US $1,000,000 in assets providing US$40,000 annual income.  Sure many people retire with less but they will face greater risk, face many compromises and limited options. With $40K annual income, one can travel with a degree of freedom, comfort and less worry about unexpected expenses.  Of course, the more money you have the greater your options and the more secure your finances will be but $1 million is a good minimum starting point.

So let us think a moment.  Would it be easier to save $1 million while living in a cheap place like Mississippi where the median household income is less than $50k a year or an expensive place like New Jersey where it is over $80k a year?  The key to FIRE is to always live below your means.  If you save 30% of your income in Mississippi earning the median household income you save a whopping $15K a year.  If you save 30% of your income in New Jersey you would have $24K a year.  Over the 20 years that extra $9,000 a year at 7% returns comes out to over $360,000 difference!  Saving $15K a year for 20 years at 7% return is $614,000 while saving $24k a year comes out to over $983,000!  Consider this: earning just the median household income in New Jersey if you save 30% of your income a year starting at age 25 you will have just shy of $1 million by the time you are 45.  Live in Mississippi and you will be only just over halfway to your goal. 

In addition, it is harder to squeeze savings out of lower income. There are certain fixed costs in life which don’t change much location to location.   Saving 30% of $80K a year leaves you with $56K a year which is a reasonable amount even in New Jersey if you are thrifty.  Saving 30% of $50K a year takes you down to $35K which is getting close to the line where bills become uncomfortable and an unexpected expense can completely derail your financial plan.  Moreover, a higher income gives you more room to save an even higher percentage. 

One of the best ways to accumulate assets is real estate.  Once again, the advantage is to live in a place with more expensive houses.  You buy a $75,000 house and lucky for you it doubles in price and you make $75,000.  You buy a $200,000 house and it lucky for you it doubles in price and you make $200,000 which makes a substantially larger way towards the $1 million you need.  This is not to say that it is a good idea to buy more house than you need or can afford.  Rather follow the old adage and buy the cheapest house in the best neighborhood you can afford.  You should consider your house as an investment like any other.

The key though is not so much living in an expensive area but the higher income jobs those expensive areas offer.  It would do you no good if you moved to New Jersey and worked at McDonald’s for $20,000  a year.  You need to find out where you will be best paid for your skills and compare it with the cost of living at that location.  It is counterproductive if you will be paid $10k more a year if your cost of living will rise by $20K a year.  However if you are a software engineer, you should probably look to move from Mississippi to California.  Even better if you manage to find remote work paying California salaries while living in Mississippi. 

Remember it is always easier to move from a high cost area to a low cost area than the other way around.  Attaining FIRE is about paying attention to all areas of your financial life big or small and while saving $5 a day brewing coffee at home instead of getting Starbucks helps, strategically choosing where you live will have a much bigger impact.  Open your mind and look for jobs in a different, higher paying locations, your future self will thank you.






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