Cost of Location: 6 Ways Location Can Affect Your Lifestyle

Personal Finance
You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved. Here's how we make money.

As they say – location, location, location. Yes, some neighborhoods tend to be more expensive than others, but here are 6 ways your location can affect your cost of living.

1. What insurance you need to buy

Do you live on a mountain, where a landslide could sweep away your house? Do hurricanes and tornados send you to a storm shelter on a regular basis? Are you in a high crime neighborhood? Or out in the prairie, where brush fire is common? Those are all insurance high-risk zones, and the kind of insurance you will need and how much you’ll have to pay for it will be all over the map.

For instance, in California where there can be high occurrences of earthquakes, earthquake insurance can be costly. It can also raise your premiums, especially if you live in an earthquake hot zone. And what about other kinds of insurance, like healthcare? That can be regional too. If you live in Massachusetts, their mandatory health care will affect your finances. Even if you are working at a job that doesn’t provide health insurance you are still responsible for purchasing health care. If you fail to do this, you will be taxed. Living in Southern states like Florida, Louisiana or Mississippi may require you to purchase flood insurance. Depending on how susceptible your house is to flooding, the premiums for living in certain areas can be quite high.

2. What kind of taxes you need to pay

There are seven states that have no individual income tax. These are: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. If you live in any of these states you will only have to pay Federal Income Tax. New Hampshire and Tennessee will only charge you income tax on interest from stocks and bonds. If you live in Colorado, Illinois, Indiana, Massachusetts, Michigan, Pennsylvania or Utah, you will only be charged a flat rate percentage income tax. This means that, regardless of your income, you are charged the same tax rate as everyone else, with no deductions or exemptions allowed.

Just because a state doesn’t charge an income tax doesn’t mean that you will be paying less in taxes. States and regions levy unique taxes on their residents you might never have considered. For instance, in arid climates like the South West, water is a hot commodity. You may be charged higher taxes on your utilities for the supply and usage of water and electricity depending on how hard it is to bring these services to you.

3. How much your house costs

How much it costs to buy a house can vary shockingly state-to-state and market-to-market. It will be dramatically more expensive in New York City or San Francisco to purchase a house than it will be in Cleveland or Detroit. For instance, the median list price of a home in San Francisco is $749,000, whereas it’s $11,000 in Detroit, according to one estimate. In Atlanta, home prices in the metro-area plummeted 17.3% from 2011 to 2012. It may also be beneficial to purchase a home outside of city limits, where the market may be considerably lower. Of course, this means commuting, which can mean another financial burden.

4. Whether you need to commute, and what it costs

Many cities and states make having a car a necessity. If you live in a densely populated urban area that has a good public transportation system, the financial burden of owning a car and gas prices could be something that you’ll never experience. Although gas in New York City is on average $3.78 a gallon, or $60.48 for a sixteen gallon tank, the need to drive a car is not a necessity. If you fill up your car two times a week in New York City it will end up costing you $120.96. However, a weekly unlimited-ride MetroCard in New York City will only cost you $29. That’s a savings of almost $100.

5. How likely you are to get a job, and what it’s going to pay

Employment—or lack there of—can also make an impact on your finances. The state with the lowest unemployment rate as of May 2012 is South Dakota at 3%, while the highest is Nevada at 11.6%. A state with a high unemployment rate could force you to take a job with a lower salary or even for minimum wage. In a state like Georgia, where the minimum wage is $5.15 per hour, meaning $206 per 40-hour workweek before taxes, what you can afford on a regular basis is greatly reduced. Compare that to Oregon, which has a minimum wage of $8.80 per hour, or $352 per week, and no Income Tax, and you may be more financially comfortable.

6. What your cost of living really is

Lastly, and maybe most importantly, is your cost (and quality) of living. This to a certain degree can really be the sum total of the examples listed above. Cost of living can include insurance, income, taxes, and other miscellaneous expenses. Online cost of living calculators let you estimate much a hit your finances will take in the current region you live in compared to another place. For example, take a look at the cost of living in Phoenix versus Miami. The cost of living in Miami is 4.5% less than in Phoenix. However, people in Phoenix make on average 1.3% more annually than people in Miami. Although the cost of living in Phoenix is more than Miami, you are also making more. It is not necessarily the case that you will pay more in Phoenix, it’s just a probability. As a result, making more can give you added income to take trips or buy items that you may not be able to with a lower income. That extra spending capability can add up towards a higher quality of living.

You might think the only way to improve your personal finance situation is by upping the amount of money you’re making, but be sure to evaluate all the various factors affecting your taxes, insurance, transportation and housing costs. Just because they appear constant doesn’t mean you’re stuck with them. Evaluating where and how you are living can have long lasting effects on your money. Making changes like using public transportation, or even moving to another region, can be a huge boon for your finances and your overall quality of life.