By ALLISON KADE
There are many reasons to move: You want more space, you want less space, you want a good school district, you love city living, you hate city living. But there's one growing reason to move: You're getting priced out.
Rent costs have increased almost 3 percent in the past year, and the median cost to rent a two-bedroom apartment is around $4,600 in cities like New York and San Francisco. And you won't do any better if you're hoping to buy a place: Home prices in many areas have increased more than 5 percent in just a year.
Moving outward from the city center is always an option, but there's a growing trend of people -- especially millennials -- picking up and moving to new cities altogether, especially "second-tier" cities such as Austin, Denver and Portland.
In these cities, housing costs are generally cheaper, and it might be easier to move quickly through the ranks at work compared to competitive "first-tier" cities such as New York.
"People are getting pushed out of many big cities," says Certified Financial Planner™ Cary Carbonaro, author of "The Money Queen's Guide" and managing director at United Capital.
Compounding the issue is that many young adults -- and plenty of not-so-young adults -- are struggling with massive student loan burdens that limit their ability to buy homes or pay for rising rents. According to analysis by Edvisors' financial expert, Mark Kantrowitz, the average 2015 college graduate has about $35,000 in student debt.
If you're wondering whether you might be ready to graduate from your current city to another, here are some questions to ask yourself.
1. Can I afford to stay where I am, or does something need to change?
To determine a healthy amount for you to spend on housing, Carbonaro suggests two different rules of thumb. The first is the "28 rule." Multiply your gross monthly income by 28 percent. So, if your monthly salary before taxes is $5,000 a month, you ideally wouldn't spend more than $1,400 per month on housing (whether rent or mortgage payments).
$5,000 x 0.28 = $1,400
The "36 rule" is more complicated but also more nuanced:
- Start by multiplying your monthly gross income by 36 percent.
- Now tally up all your monthly debts, including student loan minimum payments, credit card debt and auto loans.
- Subtract your debt from your 36 percent number, and that's how much you have left for housing.
Let's say you make $5,000 a month and owe $500 in minimum payments on credit cards and student loans. By this calculation, your monthly housing costs should hover around $1,300.
$5,000 x 0.36 = $1,800
$1,800 - $500 in monthly debts = $1,300
If you can't find a reasonable place to live for these amounts, it might be time to consider moving elsewhere, whether to an outlying suburb or to a new city entirely.
2. Do I want to move to an outlying area or another city?
Moving outside the city could help cut housing costs. Carbonaro says that one of her clients had three young children who all attended an elite private school in Manhattan. The client was living off a trust fund, but she was running through it quickly.
Carbonaro said to her client, "You're going to run out of money in less than ten years at the rate you're going. Think about moving to the suburbs and putting your kids in a nice, regular school."
The client decided to move to New Jersey, where she slashed her expenses. "She paid $3,000 a month (for her house) as opposed to $6,000 in the city," Carbonaro says. "Before, she paid $120,000 a year for her kids' school, but now she could send her kids to public schools in the suburbs."
However, the cost of living might still be high in outlying areas, and you might cringe at the thought of living too far from a city center. After all, what's the point of living in the metropolitan area if you're too far to enjoy its benefits?
3. Which city is right for me?
Deciding which city is right for you is a very personal decision, so consider what's important to you. Will you have good job prospects in a new city? Will you have access to the little things you want, like local SoulCycle classes? Here are some of the factors you may want to think about:
The value of a dollar: A cost-of-living calculator shows what you need to earn to make a comparable living in another city. For example, according to CNN Money's calculator, if you moved from Los Angeles to Chicago, your housing costs could shrink by about 35 percent, and transportation and health care costs could shrink by about 10 percent.
Your ability to buy a home: Some people choose to move cities because they'd like to buy property but have been priced out of homeownership.
As you contemplate a potential move, you can get a general sense of whether the cost of housing is increasing or decreasing in a given city by looking at the S&P/Case-Shiller Home Price Index (this index tracks home prices across the country, so simply look at the graph to see if prices are trending upward or downward in your city of choice).
You can also check out the "affordability grades" of major cities, as this compares median salaries with median home prices to indicate if the average person could afford a home.
There's also a mathematical formula that can help you decide whether it's more cost-effective to rent or buy, based on how long it'd take for your rent payments over time to equal the cost of your home.
Realtor.com's Rent vs. Buy Calculator lets you enter a rent versus the cost to buy a home in a particular area, and the calculator will inform you which option may be better.
Job prospects: If you plan to move with a spouse or partner, think about whether you might find work and whether he or she will, too.
Carbonaro recommends against moving to a new city without a job because you'll probably be asked for proof of income or employment if you want to rent or buy a home.
Here are some other questions to consider:
- Can your job transfer you there?
- Are your skills in demand there?
- Can you work from home, so maybe it doesn't matter where you're based?
Taxes: When someone moves across the country, taxes aren't usually the main reason. But differing state tax laws can make a significant impact, Carbonaro says. For example, Florida has no state income tax, so you may save if you move from a state that collects income tax, like California or New York.
She recommends working with a financial planner to sort out the nuances of your own potential move, as advisers usually have software that can model various scenarios for your situation.
At the end of the day, it's important to ask yourself what you're truly looking for. Are you only looking to lower your costs? Or are you searching for something else, such as better access to the outdoors or closer proximity to loved ones?
The decision to uproot your life is a major one and shouldn't be taken lightly. If all you're looking for is a slightly cheaper cost of living, there are ways you can save money by budgeting or find a better deal when looking for somewhere to live.
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