High cost of living (HCOL) vs. Low cost of living (LCOL): Pros and Cons

What’s the difference between high cost of living areas versus low cost of living?

High cost of living areas (HCOL) are considered more expensive to live in than low cost of living (LCOL). Homes, gas, food, and other daily expenses are more expensive. Typically, salaries are higher in HCOL areas, but your purchasing power tends to go further in LCOL areas.

Imagine, being able to keep your big city salary but cutting your living expenses significantly. You’re saving more money and are on track for early retirement.

Understanding the difference between HCOL and LCOL is critical if you want to save money.

Luckily for you, I’ll show you the difference between high cost and low cost living. I’ll show you how to evaluate job offers in different cities and help you decide if you should move.

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High cost of living (HCOL) vs. Low cost of living (LCOL)

A high cost of living (HCOL) vs. low cost of living (LCOL) area means goods and services are more expensive in HCOL areas than LCOL. Simply put, high cost of living areas are more expensive to live in than low cost of living areas. Large cities are typically considered a high cost of living area and small cities are considered low cost.

For example, living in Seattle or New York City is considered expensive and salaries are typically higher to compensate. However, the spending power of your dollar goes further in a low cost of living area.

HCOL vs LCOL is why you can barely get a livable starter home in San Francisco for $700k or more, but a mansion in the midwest for a couple hundred thousand.

More people want to live in high cost of living areas, which tends to drive up the price due to supply and demand.

What is high cost of living?

High cost of living areas are considered to be more expensive to live in when compared to the average cost of living. Commodities such as gas, food, and utilities will cost more money than if you lived in an average or low cost of living area.

What is low cost of living?

Low cost of living areas are considered to be relatively inexpensive to live when compared to the average cost of living. Commodities such as gas, food, and utilities will cost less money than if you lived in an average or high cost of living area.

Cost of living comparison

Cost of living can be compared between cities (or countries) using the cost of living index. The cost of living index is a number which measures how expensive one area is compared to the next.

A cost of living index of 100 means the area is considered to be average for costs of living. Anything higher than 100 means the area is considered expensive, while under 100 means it’s relatively cheap.

Let’s take a look at the cost of living index of Seattle, Wa vs. Idaho Falls, Id.

Seattle, Wa Idaho Falls, Id
2021 Cost of living index 167.8 93.1
Median cost of home $851k $301k
Average Household income $92k $53k

Seattle is 80% more expensive to live in than Idaho Falls when you compare overall cost of living index (80% = 167.8/93.1 * 100). Seattle average household income is only 74.5% more than Idaho Falls. However, the average home cost to live in Seattle is 2.82 times the cost of Idaho Falls.

As you can see, the salary to live comfortably is much less in Idaho Falls. Ideally, you could get a remote job in Seattle which pays $92k, but live in a low cost of living area like Idaho Falls.

Let’s assume you live in Seattle, but got a job offer in Idaho Falls. Your Seattle Salary is $80k, but Idaho Falls is only offering you $62k. Do you want to take an $18k per year pay cut?

Using the cost of living index, we can see how much money you need in Idaho Falls to maintain your same Seattle lifestyle. You would need $44,386 in Idaho Falls to maintain your current Seattle lifestyle ($44k = $80k * 167.8/93.1).

Therefore, you’re actually getting a pay increase by moving to Idaho Falls with a lower salary.

How do you find the cost of living?

The cost of living index can be found by doing a Google Search for “cost of living index + city.”

Moving from HCOL to LCOL

Location arbitrage is the practice of moving from a high cost of living area to a low cost of living area. Moving from HCOL to LCOL area can be a good way to save more money, especially if you can work remotely.

Is it worth it to move from HCOL to LCOL?

Moving from a high cost of living to low cost of living can be beneficial financially. However, moving to a low cost of living will typically mean less entertainment options when compared to a big city. Therefore, you need to consider if moving to save money is worth the lifestyle difference.

You’re going to immediately start saving more money when you move to a low cost of living area. Saving more money means it will be easier for you to reach financial independence and retire earlier.

However, city folk often have a tough time adapting to low cost of living areas. You don’t have the entertainment value of a big city or many of the fancy restaurants. 

Consider visiting the low cost of living area before you commit to moving. There are big differences between moving to the countryside or the forestry feel of Oregon. Some low cost of living areas have more big city feel than others.

Remote work in HCOL while living in LCOL

You should consider moving to a low cost of living area if you can work remotely with a high cost of living area company. Big city companies typically pay large city paychecks, which you can’t get in low cost of living areas. Therefore, you are earning a high salary, but reducing your living expenses at the same time.

Summary: HCOL vs. LCOL

As you can see, high cost of living areas are expensive to live in. Low cost of living areas are relatively cheap to live in. You can save a lot of money by moving from a high cost of living area to low cost.

Cost of living is evaluated by using the cost of living index. The cost of living index allows you to easily compare how expensive one area is compared to another. 100 is considered average cost of living, above 100 is considered expensive, and below 100 is considered inexpensive.

You can find the cost of living for any area by doing a Google search for “cost of living index + city.”

Moving from a HCOL to LCOL area is a great way to save money, especially if you can keep the HCOL salary. You’ll save more money, which will allow you to retire faster than if you stayed in a large city. However, you’ll have less entertainment or food options when moving to a smaller city.

I do believe there is a low cost of living city that anyone would be happy to live in. You have to do research into low cost of living cities if you’re planning on moving. Remember, not all low cost of living cities are created the same.