HCOL vs LCOL – Which Option Works Better Financially?


One of the biggest financial decisions people have to make is choosing where to live. The cost of living in an area plays a major role in determining how far your money will go. People looking to optimize their finances often debate whether it’s better to live in a high cost of living (HCOL) area or a low cost of living (LCOL) area.

There are good arguments on both sides of this issue. HCOL areas like New York City and San Francisco offer higher salaries and more opportunities for career advancement. LCOL areas like Texas and North Carolina have lower housing costs and taxes.

This article will analyze the key financial factors to consider when deciding between living in an HCOL city versus an LCOL area. It will compare and contrast how elements like housing, taxes, healthcare, and wages stack up. By looking at the pros and cons of each option, you can determine which choice may work out better for your financial situation.

HCOL Areas Pros and Cons

High cost of living areas like New York, San Francisco and Los Angeles have some major advantages but also considerable drawbacks from a financial perspective:

Pros of High COL Areas

  • Higher Salaries: Jobs in HCOL areas typically pay much higher salaries. For example, the average software engineer makes $110,000 in San Francisco but only $86,000 in Atlanta. The higher pay helps compensate for higher living costs.
  • More Job Opportunities: Major hubs like NYC and Silicon Valley have far more job openings, especially for high-paying industries like tech, finance, healthcare. Easier to find a high-paying job.
  • World-class Amenities: Access to arts, culture, fine dining, entertainment, sports. Great for those that value abundant amenities.

Cons of High COL Areas

  • Extremely Expensive Housing: From rents to real estate, housing costs are staggering. The median home price is $1.3 million in San Francisco. Difficult for middle class to buy.
  • High Taxes: Areas like NYC, SF and LA have very high state and local taxes that eat into paychecks. NYC has a top income tax rate of nearly 4%.
  • High Costs of Living: Everything from groceries and utilities to childcare costs significantly more. Cost of living is routinely 30-40% above national average.

In summary, high salaries compensate for some of the astronomical costs but it is very difficult to accumulate savings and wealth in most HCOL regions, especially on a middle class income. Home ownership may not be realistic for many.

LCOL Areas Pros and Cons

Low cost of living areas like Texas, Atlanta, Raleigh have their own advantages and disadvantages for personal finances:

Pros of Low COL Areas

  • Affordable Housing: Home prices and rents are much lower than coastal cities. Median home price in Houston is around $250,000. Easier to buy.
  • Lower Taxes: States like Texas and Florida have no state income tax and lower overall tax rates. Keeps more money in your paycheck.
  • Lower Costs of Living: Groceries, utilities, childcare, and other expenses cost significantly less than HCOL areas. Easier to live comfortably on less.

Cons of Low COL Areas

  • Lower Salaries: While pay is rising in some LCOL areas, salaries are generally considerably lower than in big coastal tech hubs like SF. Need to carefully research.
  • Fewer Job Opportunities: Less job openings compared to major hubs like NYC. Industries like finance, tech, biotech concentrated in HCOL areas.
  • Less Amenities: LCOL areas lack the abundant amenities of NYC, SF, LA. Light on culture, arts, fine dining, public transit. Lifestyle is very car dependent.

Overall, LCOL areas offer better ability to save and build wealth thanks to affordable housing and costs. But you sacrifice career earnings potential and big city amenities. Retiring early is realistic on a middle class salary in a LCOL area.

Housing Costs

Housing is typically the biggest factor that makes cost of living higher in certain metro areas. Large cities on the coasts like New York and San Francisco have extremely high real estate and rental prices. This table compares median home values and median rents for sample HCOL and LCOL areas:

City Median Home Value Median Rent
New York, NY (HCOL) $675,000 $1,800
San Francisco, CA (HCOL) $1,600,000 $2,200
Dallas, TX (LCOL) $290,000 $1,100
Raleigh, NC (LCOL) $315,000 $1,200

As you can see, buying a home or renting an apartment in a HCOL city costs drastically more. The median home value in San Francisco is nearly 5.5 times higher than in Dallas. The median rent in New York City is around 60% more expensive than Raleigh.

Housing eats up a much larger chunk of your paycheck in HCOL areas. This leaves less money available for other goals like retirement savings, vacations, etc. Homeownership may not even be realistic in hyper-expensive real estate markets for average earners.

Pros of LCOL for Housing:

  • Homes and rentals are very affordable
  • Ability to purchase larger, higher-end home
  • Money left over each month for other savings goals

Pros of HCOL for Housing:

  • Potential for home equity growth if prices appreciate
  • Access to world-class amenities and neighborhoods


In addition to housing, taxes are generally higher in HCOL regions too. Many HCOL states and cities have elevated income and property taxes:

Location Top Income Tax Rate Effective Property Tax Rate
New York, NY 12.7% 2%
San Francisco, CA 13.3% 1.1%
Dallas, TX 0% 2.18%
Raleigh, NC 5.25% 0.93%

New York and California both have very high state income tax rates of nearly 13%. Texas and North Carolina do not tax wage income. This saves LCOL residents thousands per year.

Property taxes show more variance, but are still generally lower in LCOL cities. The property tax rate in Raleigh is less than half of San Francisco’s rate. Homeowners in HCOL states also pay higher mortgage interest rates due to larger loan amounts.

Pros of LCOL for Taxes:

  • Little to no state income tax, saving thousands
  • Lower property tax rates on real estate
  • Deductions and tax credits go further

Pros of HCOL for Taxes:

  • Some HCOL states have better social services from tax revenue
  • Tax rates may be comparable to income level

Healthcare Costs

Healthcare is a major household expense that also fluctuates based on where you live. According to the Health System Tracker, healthcare spending per person in 2020 was:

  • New York, NY: $8,800
  • San Francisco, CA: $8,200
  • Dallas, TX: $7,100
  • Raleigh, NC: $6,600

On average, residents of HCOL cities spend 25-30% more on healthcare than those in LCOL metros. Health insurance premiums and out-of-pocket costs for medical services are lower when overall cost of living is lower.

Pros of LCOL for Healthcare:

  • Lower insurance premiums and out-of-pocket medical costs
  • Savings can be invested into retirement accounts

Pros of HCOL for Healthcare:

  • Access to prestigious healthcare systems and specialists
  • More health and wellness amenities like gyms, healthy food

Salary and Income Potential

One key advantage of high cost cities is higher salaries for many roles. Employers adjust compensation to account for pricier housing and taxes. Here is average salary data for sample professions:

Occupation New York, NY Dallas, TX % Difference
Registered Nurse $82,750 $75,260 +10%
Accountant $77,44 $63,550 +22%
Software Engineer $114,600 $103,560 +11%

While pay is certainly higher in NYC across the board, salaries do not increase enough to offset the higher living expenses in most cases. Additionally, some LCOL areas like Texas have no state income tax, improving take-home pay.

Career advancement opportunities are also greater in HCOL cities. This allows workers to move up into higher-paying roles more quickly. The tradeoff is these promotions often require longer work hours.

Pros of HCOL for Income:

  • Higher salaries for most occupations
  • More opportunities for career development
  • Networking benefits for industries concentrated in HCOL cities

Pros of LCOL for Income:

  • Low state income tax results in higher take-home pay
  • Lower cost of living makes each dollar go farther

This table summarizes how salary could impact take-home income:

  New York, NY Dallas, TX
Registered Nurse Salary $82,750 $75,260
Effective Income Tax Rate 27% 22%
Take-Home Pay $60,408 $58,703
Median Rent -$21,600 -$13,200
Remaining Income $38,808 $45,503

For this registered nurse example, the higher pre-tax salary in New York is outweighed by higher taxes and rent. The nurse has over $6,500 more remaining income in Dallas versus NYC.

Retirement Savings

The final factor to weigh is accumulating retirement savings. With housing eating up more of your budget in HCOL areas, it can be challenging to save sufficiently for retirement.

Maxing out a 401(k) plan requires saving $22,500 per year as of 2024. Here is how much remains from the take-home incomes above after paying rent:

  New York, NY Dallas, TX
Take-Home Pay $60,408 $58,703
Less Rent -$21,600 -$13,200
Remaining $38,808 $45,503
Max 401(k) Contribution -$22,500 -$22,500
Money Left After Saving $16,308 $23,003

The nurse in Dallas has over $6,500 more left after maxing her 401(k) contribution compared to NYC. Saving aggressively for retirement is more feasible in LCOL locations.

Pros of LCOL for Retirement Savings:

  • More disposable income makes it easier to maximize retirement contributions
  • Lower cost of living requires less savings to be comfortable in retirement

Pros of HCOL for Retirement Savings:

  • Higher incomes can lead to larger retirement contributions
  • More investment in growth of taxable accounts

Summary of Key Considerations

Factor Low Cost of Living (LCOL) High Cost of Living (HCOL)
Housing Costs More affordable, money left over after housing expenses Potential for home equity growth in expensive property markets
Taxes Little to no income tax, lower property taxes Better social services in some HCOL states
Healthcare Costs Lower insurance premiums and out-of-pocket costs Access to prestigious healthcare
Income Potential Take-home pay optimized with no income tax Higher salaries but high taxes offset gain
Retirement Savings More disposable income makes retirement saving easier Higher incomes support larger retirement contributions

LCOL Cities on the Rise

Salaries and opportunities in LCOL areas historically trailed major expensive coastal cities. But the rise of remote work since 2020 has led to a major dispersal of higher wage knowledge economy jobs to affordable metros.

LCOL cities like Atlanta, Dallas, Denver and Austin have seen rapid rises in tech salaries and jobs over the past few years as talent spreads out. This could lead to higher incomes in these affordable cities without proportionate spikes in costs.

Other rising LCOL cities with booming tech and startup scenes include:

  • Raleigh, NC
  • Nashville, TN
  • Columbus, OH
  • Pittsburgh, PA
  • Salt Lake City, UT

These emerging tech hubs offer salaries approaching major coastal hubs but with housing and living costs 40-60% lower. This combination of rising incomes and low costs unlocks major financial advantages in these cities.


Deciding between living in a HCOL city versus LCOL area requires weighing a variety of financial factors. While salaries tend to be higher in expensive metro areas, the savings from lower taxes and living expenses in LCOL locations can actually leave you with more disposable income.

The critical consideration is your career trajectory and growth opportunities in each location. If you can land a high-paying job and climb the ranks in a HCOL city, it may be worth the tradeoffs. But you need to be realistic about your income potential. For most people, optimizing expenses by living in an affordable LCOL area sets up a stronger financial foundation. The lower cost of living leaves more room for maxing out retirement contributions while also enjoying day-to-day life.

The best approach is running the numbers for your own situation. Look at specific job offers and exact cost of living data. Crunching the details on taxes, housing, and expenses for each location will illuminate which option offers the most financial upside. With some diligent research, you can determine if a LCOL or HCOL area ultimately aligns better with your financial goals.

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