Credit Karma studied metrics on taxes, state pension funding rates, property values, income and cost of living to compile a list of the best and worst states to live in for your finances. (Click here for the full methodology.)
Cheaper states were clustered in the middle of the country and in the south, while more expensive states tended to be coastal.
The five best states for your personal finances in 2022 are (No. 1 being best):
- South Dakota
And the bottom five states for taxes (No. 1 being worst):
- New Jersey
Read on for a deeper dive into some of the factors that figured into our rankings, and how states stack up on individual metrics.
Overall ranking of best states for your finances
In our scoring system for this study, a lower score means the state is better when it comes to finances. This table shows the overall ranking, along with a few other key financial indicators for each state:
|Rank||State||Score||Top state income tax rate||Median household income 2019||Grocery cost of living rank|
Note: Two states — Arkansas and Kentucky — tied for fourth for grocery cost of living:
Coastal states came in hot as some of the worst states for personal finances. Although residents in those states have higher median incomes, the states often have higher taxes and greater costs for things like groceries, transportation, utilities and medical care.
Hawaii and Alaska regularly show up as more expensive states in Credit Karma’s studies, like this report on the cheapest states. This may be because both are geographically isolated, meaning goods must travel farther at greater cost.
The Midwest, Plains, Rockies and South tend to be cheaper, with the exception of Illinois. Illinois appears as one of the worst states for finances — mostly because of its high effective property tax rate and the poor financial condition of its publicly funded pensions.
Take a look at the map below to see what regions could be better for your finances:
States with the lowest cost-of-living indexes
In terms of overall cost of living, these were the states with the lowest and highest costs:
|Lowest cost-of-living states (1 being lowest)||Highest cost-of-living states (50 being highest)|
|1. Mississippi||50. Hawaii|
|2. Kansas||49. New York|
|3. Oklahoma||48. California|
|4. Alabama||47. Massachusetts|
|5. Arkansas||46. Oregon|
Credit Karma used the following cost-of-living indexes in the final calculation for the best states for your finances:
Here are the states with the lowest cost of living in the individual indexes:
Note: For the transportation cost of living, Virginia and South Dakota tied for fourth place.
Here are the states with the highest cost of living in the individual indexes:
|46||Delaware||Nevada||Rhode Island||New Hampshire|
Arkansas’ consistently good scores in cost-of-living indexes might explain why it ended up as one of the overall best states for personal finances. Tennessee also makes multiple appearances, which contributes to its overall standing.
Hawaii and Alaska have a similar, if opposite, dynamic. Both appear in multiple categories as expensive states, leading both to be among the worst states for personal finances.
States with the lowest average effective property tax rates
The U.S. Census Bureau’s 2019 American Community Survey and the Annual Survey of State and Local Government Finances in 2019 provided the average effective property tax rates for different states. A state’s average effective property tax rate is an estimate of the percentage, on average, of a property’s value that’s paid annually in taxes.
Using the government data, we were able to find the average effective property tax rate based on what people in owner-occupied units pay on the state level.
|Rank||State||Avg. effective property tax rate|
Hawaii is the dark horse on this list. Hawaii has some of the most expensive property in the U.S., but it has a low effective property tax rate.
New Jersey has the highest average effective property tax at 2.44%, followed by New Hampshire at 2.12%. Illinois and Connecticut share third place at 2.11%.
Keep in mind that low property tax rates may not translate into a small tax bill because of property value. For example, homes in Hawaii are notoriously expensive. Hawaii’s median sales price for a home was $690,000 in September of 2021 according to RedFin. With a property tax rate of 0.28%, a homeowner with a home valued at a median home sales price in Hawaii could expect to pay $1,932 in taxes.
Alabama has the next lowest average effective property tax at 0.37%, and its median home sales price in September of 2021 was $256,000. A homeowner whose home is valued at Alabama’s median home value would owe only about $947 in taxes, despite facing a higher effective tax rate.
New Jersey gets hammered twice because it has both a high effective property tax rate and expensive property. The median sales price for a home in New Jersey in September 2021 was $423,000. Assuming the homeowner has a home valued for that amount and must pay the average property tax rate of 2.44%, they’d owe a whopping $10,321.20 in taxes.
States with the lowest income tax rates and highest median income
There are eight states with no state income tax in 2022:
- South Dakota
Note: Although New Hampshire has no employment income tax, it does have a 5% tax on dividend and interest income. Employment income is a lot more common than dividend and interest income, but it’s still worth considering.
The states with the highest personal income tax rates:
|State||Top income tax rate||Top tax bracket – single||Top tax bracket – joint|
Remember, most states tax income on a marginal basis, which means that each segment of an individual’s income is taxed in progressively larger amounts. All of the states with the highest personal income tax rates use marginal or progressive taxation.
Here are the nine states with flat income tax rates in 2021:
|State||Flat income tax rate|
One thing to note: Income can be taxed at both the federal and state level. Even if a state doesn’t have a personal income tax, an individual may owe money on their income to the federal government.
Income tax rates only paint part of the picture. Another big part is how much income folks bring in. This study used U.S. Census Bureau data from 2014 and 2019 to find median income and change over time.
The five states with the lowest median income in 2019 were:
- Mississippi – $45,081
- West Virginia – $46,711
- Arkansas – $47,597
- Louisiana $49,469
- New Mexico – $49,754
The five states with the highest median income in 2019 were:
- Maryland – $84,805
- New Jersey – $82,545
- Hawaii – $81,275
- Massachusetts – $81,215
- Connecticut – $78,444
This study also looked at the change in median income over five years. While all states experienced growth in median income, some grew more than others. Alaska’s median income increased a measly 8.1%. Wyoming and Louisiana also lagged, with only 10% growth over five years. Oregon was at the other end of the spectrum, with its median income increasing 24.3% between 2014 and 2019. California and Washington tagged close behind at 22.4% during the same period.
Tips for managing your finances
If you’re already thinking about moving, this study could help you find the right mix of lower costs and better opportunities. But if you’re staying put, there are a few things you can consider to help you manage your finances better.
Making a budget is a basic first step that can help you get your arms around your financial situation.
Once you know where you’re at, you can set a goal. Maybe it’s paying off debt. Maybe it’s building an emergency fund. Or buying a home. Whatever it is, it’s a lot easier to tackle making a plan if you have a budget and a goal.
Thinking about taxes throughout the year can be helpful too. A good place to start is your W-4, if you have one. Many employees fill out W-4s when they begin working for a new employer. These forms tell employers how much should be withheld for taxes from an individual’s paycheck. If you find yourself owing a ton or getting a huge return each year, it may be time to check your W-4 and the allowances you’ve selected.
There are also some financial moves to consider before the end of every year to help prepare for tax season.
Regardless of where you are in your financial journey, knowledge is power!
To determine the best states to live in for your finances, all 50 U.S. states were analyzed using the following criteria:
- State revenue per capita, sourced from the Tax Policy Center
- State income tax rate, sourced from the Tax Policy Center
- State and local property taxes collected per capita, sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances
- Effective property tax rate is based on median property taxes paid divided by median home value, with data sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances
- Percentage of public pension plan funded, sourced from the Tax Policy Center
- Median home sales price for September 2021, sourced from Redfin
- One-year home value appreciation, 2-year home value appreciation and 5-year home value appreciation is based on median home value for all homes from September 2016 through September 2021, sourced from Zillow
- Groceries cost-of-living index, utilities cost-of-living index, transportation cost-of -living index and healthcare cost-of-living index all sourced from the Missouri Economic Research and Information Center, second quarter 2021
- Median household income by state from 2014 and 2019, sourced from the U.S. Census Bureau
- State pension funding in 2021, sourced from the Pew Charitable Trusts
All these factors were scored, then added together to get a final score, allowing Credit Karma to rank states from best to worst.
- Missouri Economic Research and Information Center for Q2 2021
- Pew Charitable Trusts – State Pension Funding Gap 2021
- Redfin Data Center – Median home values
- Tax Policy Center – State revenue per capita 2019
- Tax Policy Center – State income tax rates 2022
- U.S. Census Bureau’s 2019 and 2014 American Community Survey
- U.S. Census Bureau’s 2019 Annual Survey of State and Local Government Finances
- Zillow Home Value Index