Jobs in cities like New York and San Francisco offer higher salaries, but the high cost of living quickly erases any of those benefits. In order to afford an expensive city, you need to beat their high cost of living.
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The average salary in San Francisco was $86k 2018, and the average salary in Minneapolis was $62k. Here’s their relative spending power using NerdWallet’s cost of living calculator:
| San Francisco | Minneapolis | |
| San Francisco | $86,285 | $48,237 |
| Minneapolis | $110,819 | $61,952 |
The average Minneapolis resident lives a lot better than their San Francisco counterparts. Their $62k salary is similar to $111k for a San Francisco resident. That San Francisco resident making $86k is similar to a Minneapolis resident making $48k.
Should you move away from high cost of living cities? Despite the huge difference, I believe high cost of living cities are worth it. You’ll have more opportunities to get promoted, find a new job, and can network with more highly compensated people
With that said, you want to beat this high cost of living. Below are some hacks on how you can cut costs and maximize your savings in a high cost of living city.
Live with Roommates
The average one bedroom apartment in San Francisco is roughly $3,500 per month, which is roughly half of the average San Franciscans gross revenue. You should spend no more than 30% of your after-tax pay on housing to prevent becoming house poor, so this is light years away from reasonable.
Instead of packing your bags, live with roommates instead. You can find your own room in a 3-4 bedroom apartment for $1,600 per month. At that rate, you’re spending only 22% of your gross income on rent. This is still a high number, but you’re saving a killing compared to your own place.
Aside from saving money, roommates give you an extended family. You’ll learn about their professions and interests, and could extend your friendship network through them. I lived with roommates for eight years after college, and still keep in touch with all of those people.
Lower Your Transportation Costs
High cost of living cities generally have decent public transportation. If you can take a reasonable commute on the subway, bus, or train, take it and ditch the car.
In addition to saving money by eliminating car, insurance, and parking fees, you’ll also be able to use the time reading or working instead of driving.
If you live in a city like Los Angeles and need a car, own as affordable of a car as possible. We recommend spending no more than one-tenth of your salary on a car – this will keep your car payments, insurance, and maintenance low.
Ditch the Gym
Gym memberships are a waste of money, and cost a fortune in high cost of living cities. Equinox charges $300 per month for their membership, which comes out to $3,600 per year!
Not only do gym memberships cost a fortune, they take up a lot of your time. The commute could take 30 – 60 minutes of your time, and you may have to wait for machines and weights to open up when you go during peak hours.
Cut the gym and save that money and time. You can run and bike outside for free, and you can work out for free using videos like P90X. Best of all, you won’t have to wait on anyone!
How to Beat a High Cost of Living – The Bottom Line
High cost of living cities have a lot of benefits – more opportunities for job growth, more people to meet, and more things to do.
With that said, they are much more expensive to live in. While living in an expensive city can definitely be worth it in the long run, you need to make a few changes to beat the high cost of living.
Living with roommates, cutting transportation costs, and ditching the gym will save you boatload in the long-run. Keep banking that savings, and don’t succumb to lifestyle inflation as you get promoted and boost your income.
You’ll have a great experience in your expensive city, and you’ll have a much higher net worth as well.