Since the start of the pandemic, a lot of people have moved to locations with a lower cost of living. With remote work becoming the norm, lots of people can live anywhere—why not choose somewhere that allows you to build more financial freedom?
Where are people moving to and from?
Let’s start with the “from.” Many people are moving out states with a high cost of living—namely, people are leaving California. We’re also seeing a migration from expensive cities to more affordable suburbs.
For example, USA today reports an exodus out of Miami and into the Cape Coral-Fort Meyers, FL area. Similarly, people from the Washington, D.C.-Baltimore, MD area are moving into Salisbury, MD neighborhoods.
If you live in the likes of New York City, Los Angeles, San Diego, etc. and can work remotely, you have a big opportunity to make your money go further by choosing a less expensive location to call home. I’ve recently spoken with two different families who left Los Angeles and its high cost of living—they are now enjoying more disposable income to invest and build their wealth and financial freedom sooner.
How to choose a new location
Some people already know where they want to go. If you own a second home, it can be a simple process to switch residency. For example, you might own a primary home in Massachusetts and a vacation home in New Hampshire. If you have the ability, you could make New Hampshire your home state and save on paying Massachusetts income taxes.
To be considered a resident, though, you need to live in the state for a minimum of 6 months and a day each year.
If you don’t know where you’d want to end up, there are two big buckets of variables to consider: financial and lifestyle variables.
Financial variables in choosing a new location to live
If you’re going to move with the aim of increasing your financial freedom, it’s important to consider all of the financial variables:
- Cost of living
- Home values
- Overall tax burden
And within the tax burden, there are all kinds of taxes to consider:
- State income tax
- Local income tax
- Property tax
- Sales and excise tax
- Estate tax
- Inheritance tax (yes, it’s different from estate tax!)
For a simple look at state-by-state tax burden that considers state and local taxes, WalletHub sums it up nicely. Notably, you’ll probably want to avoid the following states when it comes to taxes:
- New York (12.79% overall tax burden)
- Hawaii (12.19%)
- Vermont (10.75%)
Instead, look to some of these states with lower overall taxes:
- Alaska (5.10%)
- Tennessee (5.74%)
- Wyoming (6.14%)
I’m pretty partial to New Hampshire myself, which falls close to the bottom of the tax burden, ranking at 6.84% of personal income—and has no estate or inheritance tax. It is also ranked #4 for best states to live in by US News. See a list of the state-by-state rankings here.
Speaking of estate and inheritance taxes, don’t forget to consider them when choosing a new geography. Some states (Washington state and Hawaii) take as much as 20% of your estate when you pass it on.
States also have different levels of exemption on inheritance tax. For example, in Washington, heirs will only pay taxes on amounts over $2.2 million. In Massachusetts, however, where the estate tax is up to 16%, once your assets exceed the $1 million exemption, they are all taxed. This means if your estate is worth $1.25 million, the tax applies to all $1.25 million, not just the $250,000 above the exemption. Most people won’t hit federal minimums—but will hit state minimums.
Tax Foundation offers a good summary of estate and inheritance tax by state.
Another quick note on your estate: If you do end up moving states, make sure your estate documents are still valid in your new home.
Lifestyle factors to consider in a new locale
Finances are one thing, but you also need to like the place you live! Make sure to consider other variables that might impact your quality of life in your new home. For example:
- Proximity to family
- Proximity to geographic features (mountains, ocean, etc.)
- Proximity to an airport (if you’ll need to travel back to the office)
- Quality of local schools
- Access to healthcare
- The local restaurant scene
- Cultural and political climate
I have some clients that would never relocate more than an hour from the ocean. So, while Tennessee has a low tax burden, it’s not going to be a good match for other lifestyle preferences. At the end of the day, it may be worth paying more to live somewhere that makes you happy.
U.S. News and World Report’s latest ranking outlines the top 25 places to live in the country by quality of life—which could offer you some surprising alternatives (Green Bay, Wisconsin, anyone?).
Still not sure where to go? Some states—like West Virginia and Vermont—are willing to pay you thousands of dollars to relocate within their borders. If one of these locations aligns with your other important financial and lifestyle factors, why not?
Now, more than ever, many people have the ability to choose more financial freedom by choosing a new home. Would you consider it?