Financial Independence in a HCOL Area (2024)

It was almost exactly seven and a half years ago. Jess and I were sitting in our realtor’s office signing the paperwork to submit a formal offer to buy our first home.

This day is crystal clear in my mind not only because we ended up buying the home, but also because of the amount of fear and second-guessing that I experienced at that moment.

I remember looking over at Jess before I signed the document, as if I was expecting her to say, “Wait, don’t do it.”

Those words never came.

Instead, I hesitated for a second, pretending to re-read the document so as to not reveal my inner fears. I hesitated not because it was a bad decision, but because it was a lot of money.

We were about to commit to paying over $400,000 for our first home. Once I signed this document, there would be no backing out (or at least not without losing a lot of money) if the seller accepted our offer.

At that moment, the amount of money became real.

$400,000+ is a lot of money regardless of where you are from, but it can feel like a lot more (or less) depending on where you live. In the place where I grew up, $400,000 was a lot of money.

To give you a sense of the cost of living where I grew up, the sprawling 3,000-square-foot childhood home that I described in the 1,000 square feet mansion post was purchased for under $100,000. Even after factoring in inflation for 25 years, that only amounts to approximately $172,000 in today’s dollars.

You can imagine why I had a sudden feeling of fear and doubt when I was committing to a single purchase of almost half a million dollars at the age of 27.

After hesitation came action. I signed the document.

This moment in my life gave me so much clarity on the variability in the cost of living. It’s one thing to read about the varying degrees of living expenses, and it’s another to experience the vast difference between a low cost of living area and a high cost of living area.

Why We Moved to Boston

Jess and I knew that living in Boston would be expensive, but we moved regardless of the fact that it is often listed 10 most expensive cities in the U.S.

There were a number of factors that played into our decision to move, including most notably a positive experience when Jess lived in Boston during college. She was doing an internship in Boston the summer before our senior year in college.

We were dating at the time, and I would travel up to Boston to spend our weekends together. We got to experience a little bit of everything that Boston has to offer: hiking, panoramic views of the harbor, crowds of over a million people to celebrate the 4th of July, and so much more.

We capped off the summer by getting engaged on our last weekend together in Boston.

Those positive experiences were just the beginning of why we chose to live in Boston.

We also chose to move to Boston because:

• There are a lot of activities
• The city is also not too large to feel overwhelming. We like to describe it as aligned with our pace.
• There is also plenty of green space and proximity to great outdoor adventures.
• It has four distinct seasons, which we both appreciate (although some winters are a bit harsh)
• It’s fairly diverse. We strive to be more welcoming and inclusive of all people, and we enjoy life when we are near others who prioritize this.
• Great sports teams
• An excellent job market

To this day, I am still glad that we decided to move to Boston.

But noticeably absent from our list above was thinking about how Boston would enable us to achieve financial independence in a relatively short time frame.

While I was aware of financial independence as a concept, it was not in our plans when we moved to Boston.

While unintentional, we’re well on our way to achieving financial independence, and living in a HCOL area has actually played a big part in that. In fact, we believe that living in a high cost of living area has actually allowed us to fast-track our journey to FI.

Why High Cost of Living Areas and Financial Independence are NOT mutually exclusive

The idea that a high cost of living area could fast track a journey to financial independence is counterintuitive.

Most people that we meet buy into the common myths regarding high cost of living areas, most notably:

Myth #1 – Living in an HCOL area automatically means that you will spend more money

In conversations, I often hear people refer to a cost of living index that allows people to compare the typical expenses within different cities to one another.

Most often these indices display the costs relative to New York City. In other words, if a Boston is listed at 87 and New York City is listed at 100, it means that Boston is 13% less expensive than NYC.

In this index, Boston is listed 16th highest cost of living out of the 203 cities represented. Boston is more expensive on average than most on the list.

What this index does not say is that moving to an area that is higher on the index will automatically mean that you will spend more money on everything. Moving to a more expensive area does not strip you of your free will.

You still have the choice of what you buy, how much of it you buy, and when you buy it. All of these decisions contribute to your total expenses.

Not only that, but there are often trade-offs or areas of the budget that decrease in more expensive areas, as I detail later.

Myth # 2 – I could not afford to live in a HCOL area

The second myth that people buy into is the assumption that they cannot afford to live in a HCOL area.

Over the years we’ve had several conversations with friends and family, talking about the difference in cost of living. There have even been attempts where we have tried to convince those we care about most to move near us.

We love Boston, so I guess we figured others would too.

Unfortunately, all too often the conversation turns on “affordability.”

“I could NEVER afford to live there,” they often claim.

I understand this concern all too well. This is a similar belief that I had when I almost allowed fear to overcome me when we were buying our first home.

But a lot of people live in HCOL areas and make it work. The fact is that many individuals could afford to live in a high cost of living area. They just choose not to. It’s an important distinction.

Myth #3 – I would not save as much money

People also buy into the myth that they would not be able to save as much money while living in a high cost of living area.

Our experience has been the complete opposite. While living in Boston, we achieved a savings rate of 57% while working for nonprofit organizations.

In addition to this, the Bureau of Labor Statistics (BLS) shows that households in the northeast actually have a slightly higher savings rate and amount than the south and midwest, both traditionally considered low cost of living areas.

The table below is a summary of what you will find on the BLS website if you navigate to the bottom of the page and review the data by region.

I’ve added a few extra rows to show savings (in dollars) and savings rate for your convenience. For the sake of simplicity, and as indicated above, the savings rate ignores the amount individuals would pay in taxes, especially since taxes can and do vary by state. Frankly, the differences are minimal, but areas of the country with higher cost tend to save slightly more.

Reasons to Consider Living in a HCOL Area

We clearly love living in a high cost of living area, so I may be a bit biased. But there are a number of reasons why someone might consider living in in a HCOL area:

1. To Prioritize Lifestyle Design

As is our motto at the Fioneers, the journey should be as remarkable as the destination. This means that you should place value on your day-to-day life, not just save for your future. While you should not ignore the financial aspect, don’t de-prioritize living the life that you want simply because of the numbers.

HCOL areas don’t become expensive by random luck. Many people flock to parts of the country or urban areas for a variety of reasons (i.e. weather, job opportunities, proximity to natural resources, etc.) and as a result, the demand for limited resources (e.g. land) goes up, driving up the price.

The point is simple and basic: more expensive areas are arguably better places to live (for many people).

If you disagree, consider this scenario: if the cost of living did not adjust and everything was the same price regardless of location, do you think more people would live in San Francisco, California or Wichita, Kansas?

2. Better Income Potential

When Jess and I moved to the Boston area, we knew that the job prospects as nonprofit professionalswould be much stronger than where we previously lived.

But I had no idea how strong of a job market it would be. Moving to Boston has allowed us to significantly increase our income. I’m convinced that we would not have had the same income growth if we lived in a low cost of living area.

Living in a HCOL area has (at least) three inherent benefits for your earnings potential:

1 – Higher Salaries. Employers in high cost of living areas know that in order to attract top talent, they have to pay their employees competitive wages. As is evidenced by the Bureau of Labor Statistics data above, salaries are much higher in HCOL areas.

2 – Less Likely for Prolonged Unemployment. Jess’ parents live in a low cost of living area. Out of curiosity, I occasionally look up nonprofit positions in their area. The last time that I looked, there was ONE job listed. Period. Not one job listing that day, but one listing total.

In high cost of living areas, there are more jobs available. And with more jobs available, you have a lot more options if your employer goes out of business or downsizes. With more competing companies, living in a HCOL area decreases both the likelihood of unemployment AND the length of any unavoidable unemployment period.

When Jess left her job in 2018, the strong job market here in Boston allowed her to get multiple interviews in a short period of time, allowing her to accept her part-time job shortly after she started her search. I’m not certain that would happen in a low cost of living area.

3 – Higher Income Jumps. According to a recent survey, employees received a larger pay increase by job-hopping than sticking with the same company.

In addition to higher salaries in general, with more potential employers in a HCOL area, you have greater potential for large increases in salaries. This is a great way to significantly increase your salary in a short period of time.

3 – Lower Transportation Costs

While not always the case, living in a large urban area has allowed us to keep our transportation costs low. When we needed to commute to offices downtown, we both used public transportation, leaving our one car in the driveway most days. Now we both work from home most of the time, and I often ride my electric scooter to work on a bike path that goes almost the full way between our home and my office.

We can also walk to the grocery store, the dentist, library, post office, several restaurants, and so much more. It’s such a luxury to be able to walk to so many places.

While it would be possible to not own a car at all, we like the flexibility of having reliable transportation for a variety of needs. Even with one car, we pay very little for transportation.

In a low cost of living area, households are often required to have two cars. This means having twice the expenses of gas, maintenance, insurance, etc. It also means two times the depreciation.

A nice hidden benefit of HCOL areas is that it minimizes your depreciating assets. Most people are quick to point to the high housing costs in HCOL areas, but I would rather have more money in an appreciating asset than a depreciating one (or two).

4 – You have the flexibility to move to a LCOL area

Last, but certainly not least, living in a HCOL area also gives you a nice safety net. If you needed to significantly reduce your costs for any reason, especially in retirement or after reaching financial independence, you would be able to easily move to a lower cost of living area.

It’s easier to go from HCOL to LCOL.

Those who are living in low cost of living areas are less likely to be able to make the switch to a higher cost of living area without a lot of planning.

Jess and I have discussed whether we would be willing to relocate to reach financial independence earlier. We’re not ready to do that right now. We have a number of reasons to stay in the area, including our friends and my job.

While we don’t want to move now, we do have that option in the future. We have a lot of equity in our house and are confident that we could relocate in the future to get rid of the mortgage payment, cutting over a quarter of our annual expenses, just like that.

How to Achieve Financial Independence in a HCOL Area

Many people buy into the narrative that relocating to a LCOL area is a necessity to achieve financial independence. I beg to differ.

As outlined above, there are many benefits to living in a HCOL area. Beyond that, you can also choose how you spend your money. We’re working toward FI and we’ve made several intentional decisions to expedite our journey to FI without depriving ourselves of what we truly enjoy.

Here are the top decisions that have helped us hack our HCOL area:

1- Boost our Income. Achieving FI in a high cost of living area starts with earning more. We are a dual-income household. I currently work a traditional W2 job for a nonprofit organization, and Jess quit her job a year and a half ago to run her own business. Earning more is essential to achieve FI in a HCOL area.

2- Not Eating Out Regularly. Many of my coworkers would eat out for lunch or order take-out every single day. I eat a PB&J at home almost every day. And, we rarely go out to dinner or order in, and as a result, our food budget was nearly cut in half.

3- Take advantage of free entertainment. With COVID, a lot of the free activities in the city were put on hold. We are looking forward to outdoor festivals and other events returning. We also spend plenty of time outdoors in the many beautiful green spaces. Most of these activities are free or very low cost.

4- Do It Yourself. Three years ago we built our own back patio. It was quite the project because we had to dig out our backyard. It took 5 full weekends of work with the other condo owners in our building. The total cost for supplies was around $3,000 (split between the two of us). While no small number, it was significantly less than the $17,000 quote that we received from a landscaper. By learning how to do things yourself, you can avoid the high rates charged by contractors.

5- Buy a reasonably sized home and stay there. Many people say that it’s better to rent than buy in a HCOL area. Our experience has been that buying our homeand staying here has made a huge impact on our net worth.

Many of our friends’ rents have increased in recent years. We have a fixed housing expense that has stayed the same for the past 6.5 years. Our home has also appreciated at least 50% in the time that we have owned it. This may not happen every 6 years, but it is a great start.

Living in a high cost of living area or urban environment can be very expensive. But it doesn’t have to be as expensive as you might expect. It also may not hinder your FI goals at all. If you are intentional, you can enjoy all of the perks of the great location without sacrificing your long-term aspirations.