The Benefits of a High Cost of Living

My San Francisco rent always shocks my family in Wisconsin. Why would I live there, when I could afford a $600k house in Wisconsin for the same monthly payments? Do the benefits of a high cost of living city outweigh the cons by that much?

After living in San Francisco and three other high cost of living cities for the past 10+ years, I can emphatically say that the benefits far outweigh the cons.

Expensive cities make everything else relatively cheaper, improves your network and career, and surrounds you with world class restaurants and events.

Everything Else is Relatively Cheaper

The average one bedroom apartment is $3.2k per month, which is over $100 per night. There are ways to bring rental costs down, and make these cities more affordable. With that said, several of my friends have used that excuse to spend a month or two living abroad in exotic cities like London or Tokyo since it costs the same to stay there as it does to rent in San Francisco.

In fact, regardless of where you travel, things will be similar in cost or dramatically cheaper. Dinner in Tokyo has similar costs to dinner in San Francisco, while dinner in Thailand is dramatically cheaper. Being anchored to higher prices ensures you will never have sticker shock.

What if you go somewhere more affordable? A one bedroom apartment in Milwaukee is only $900 per month, think about how much your cash flow would improve if an opportunity came out there.

Conversely, consider the opposite – you’re married with a couple kids, and are offered to move from Milwaukee to San Francisco. Is it worth paying nearly 4x just in housing costs to make the move?

Generally speaking, it’s easier to move from an expensive area to an affordable area. Once you make that move for an opportunity, you can always move back if another opportunity arises. Just make sure you don’t succumb to lifestyle inflation so you can be flexible.

Improve Your Network

New York has roughly 27k people per square mile, while Topeka, Kansas has roughly 2k people per square mile. With 14x more people in the same area, New York will have far more people that you can connect with.

Your network is incredibly vital to your professional and personal success. A strong network will tell you about career and investments opportunities that you otherwise would have missed out on, and will expand your knowledge with recommendations for new tips or books.

By living with so many people around you, your networking opportunities will be light years ahead of your peers in smaller cities. All you need is one job advancement or investment recommendation for this to pay off for the rest of your life.

Move Up the Ladder Faster

The San Francisco Bay Area has 18 of the Fortune 500 companies. In addition, they have hundreds more in industries ranging from software, biotechnology, and hospitality.

Topeka, Kansas has zero Fortune 500 companies, and 6 companies total based in their metro area. Generally speaking, which city would be easier to move jobs or find promotions?

This point accentuates my networking argument as well. Not only will you have far more people in a city like San Francisco, you’ll also have far more people who work for elite companies around you. This network can help you get a job at one of these elite companies.

Finally, you’ll get promoted faster in a high cost of living city because you have to get promoted to afford living there. You either have to move up or move out.

You can especially see this when you travel. You’ll notice that bank tellers in San Francisco are a heck of a lot younger than bank tellers in Milwaukee. Adults can’t afford these jobs, so they have to move up the ranks.

Clearly this “move up or move out” mindset adds a lot of personal pressure, but it also keeps you from getting complacent. Knowing that you have to keep moving up the ranks will help you get promoted faster.

Of course San Francisco is probably too extreme. The California Association of Realtors recommends at least a $333k salary to afford a home in San Francisco, which is the top 3% of nationwide incomes.

Best in Class Restaurants & Events

Similar to your professional life, a high cost of living city forces restaurants and events to make more money as well. Rent in San Francisco is higher for restaurants just like they’re higher for you, so they need to be best in class to justify their higher prices.

You’ll find yourself surrounded by world class restaurants and trendsetters. By the time these food styles make their way to more affordable cities, you’re already experiencing the next big thing.

The same goes for events. How many low cost of living cities have one of the top baseball and basketball teams? Milwaukee actually has excellent baseball and basketball teams in 2018, but still has zero championships to show for both sports.

In addition to professional sports, cultural events start in expensive cities first. The smash hit Hamilton broke out in New York, and quickly moved to San Francisco and Chicago afterwards. If you live in a low cost of living city, you’ll need to wait or travel to experience these events.

High Cost of Living Benefits – The Bottom Line

High cost of living cities have more benefits than drawbacks. Living in an expensive city will make everything else relatively cheaper, your network and career will improve, and you’ll be surrounded by world class restaurants and events.

While there are many benefits to a high cost of living city, it is crucial to move as soon as you can. The longer you wait, the more you’ll be tied down to your lower cost of living lifestyle.

Importantly, you can always move back. That low cost of living city will always be there, and you can move back when you’re ready. Ideally, you will move back with a lot more job experience, a higher salary, and incredible memories.