The Power of Stretching the Dollar Using Geographic Arbitrage

The Bay Area. Manhattan. Southern California.

Not only are these popular tourist destination spots, but these are also some of the most expensive places to live in the country. Being a resident in these high cost of living (HCOL) areas comes at a high premium. More than ever, people are questioning whether it makes financial sense to either move to a HCOL area, or if they’re already there, if it makes sense to stay.

The idea of stretching your dollar further by moving to a lower cost of living area is referred to as geographic arbitrage. This is a popular idea among those that are interested in pursuing financial independence. But for many, resorting to geographic arbitrage is a must because they are being priced out of expensive parts of the country. No longer having the ability to afford living close to their workplace, they resort to commuting longer and longer distances, or they pick up and move to a completely different part of the country. Desperate times call for desperate measures.


One of the most popular methods to calculate the cost of living index is the ACCRA Cost of Living Index, which is based on numbers from the Council for Community and Economic Research. This data gives you an actual dollar figure when comparing two different geographic locations. Sure, we know that it’s more expensive to live in San Francisco compared to Cincinnati, but by how much? (Take note, these numbers do NOT factor in taxes, so it’s based on after-tax income.)

If you use this calculator, a $100,000 income in Cincinnati is equivalent to over $194,000 in San Francisco. Ouch.

If you look at housing costs alone, it’s enough to make you do a double take. A house worth $233k in Cincinnati would be worth nearly $980k in San Francisco.

Housing, of course, is usually one of our biggest monthly expenses. The other top expense categories in a typical budget are transportation, food, and healthcare. If you have children, don’t forget childcare and educational costs. Generally speaking, you’re going to end up paying a premium for all of these categories across the board when you live in a HCOL area.


As someone who has lived all over the country, in both HCOL and LCOL (low cost of living) areas, I have seen the implications of cost of living firsthand. Living in a HCOL area will subject you to higher spending across many budget categories. Here are some of the observations I’ve made when making these comparisons:

  1. Housing: I’ve already discussed my own situation when buying our first home. The takeaway: there are many more costs to being a homeowner beyond the mortgage. If you feel like your mortgage payment alone will be a stretch, then you will be sure to feel the pinch once you actually own your home. When in a HCOL area, even a single family home may be out of reach for many people, despite the fact that these potential homeowners are pulling in healthy six-figure household incomes. The hotter the real estate market, the lower you need to set your expectations for what your money can buy, because it’s not going to get you anything fancy. A seven-figure property would sell for a fraction of that price in any other part of the country, a testament to the real estate mantra “location, location, location.” For many, the decision to rent makes much more sense over the decision to own because even coming up with the down payment is near impossible. This upends the whole idea of owning a home as a part of the American Dream.
  2. Transportation: Don’t be surprised to see a larger share of luxury vehicles when in a HCOL area. Some people may inadvertently consider buying a nicer vehicle because of a subconscious effort to keep up with the Joneses (see number 7 below). If you own a car, remember that you’re owning a depreciating asset.
  3. Food: This is one category that can be a huge budget buster if you live in an area where eating out or ordering in can be done quickly and conveniently. New York City is famous for having an abundance of every type of cuisine available within a short radius. Time and again, people will shell out money for convenience (and likely a very tasty meal). It doesn’t seem like a big deal to eat out to lunch a few days a week, or to order in when it’s been an especially long day. Small costs do add up over time. If you’re trying to find ways to trim your budget, then make sure you don’t overlook this category.
  4. Taxes: No one likes taxes, but our local, state, and federal governments need to make money somehow. Taxes vary widely depending on where you live, so it’s always a good idea to keep tax rates in mind when comparing different geographic locations.
  5. Childcare costs: Daycare is a huge expense, which is one of the reasons that couples may delay having children; they want to make sure that they can afford childcare on their household income. According to this survey, “the annual cost of center-based day care for infants ranged from $6,615 in Arizona to $19,805 in Washington, DC.” As you can see, this is a huge range of costs for the same service, with those in HCOL areas expected to spend on the high end of this range. Other options include in-home daycare, nannies, and au pairs. No matter the option, it represents a hefty line item that cannot be overlooked. For those that live near family willing to provide childcare, this expense can be lowered significantly or even eliminated entirely, depending on the arrangement you have with your caregivers.
  6. Educational costs: If you decide to pursue K-12 private school in a HCOL area, the cost of tuition can be eye-popping. Some of these schools rival private college costs, with tuition crossing the $55,000 mark. When looking at the schools that made it onto this list, it’s easy to see the over-representation of schools that are in the Northeast (especially the NYC metro area), the Mid-Atlantic, and the Bay Area. It’s all about supply and demand- if there is enough demand, then it only makes sense that schools will charge tuition accordingly. Tuition costs in LCOL will be lower in general, but you still need to account for the fact that this will still impact your budget. And of course, there is the whole issue of paying for college and higher education in general, which is becoming increasingly more and more burdensome for families. As college costs have soared, student loan debt has also ballooned dramatically to over $1.5 trillion (with a “t”) and counting, surpassing credit card debt.
  7. Keeping Up with the Joneses: Though not a budget item per se, in HCOL areas, you will see more evidence of wealth in the form what people own and what they can (seemingly) afford. You may find yourself spending more to match your surroundings in an attempt to keep up with the Joneses. This may or may not be done intentionally. People naturally adapt to their given environments and will find themselves making choices that they would not make if living elsewhere.
  8. Quality of Life: Again, not a budget category, but quality of life absolutely matters. Even above average income earners (just over $61,000 is the median household income, not individual, for 2018) feel just “average” when the fixed living expenses in a HCOL area take up so much of your take-home pay. On a personal note: I currently live in a LCOL area in the Midwest and I have met my fair share of people who have moved from HCOL areas. Almost unanimously, they are so happy with their choice to move due to an increased quality of life. They all describe the financial upsides of moving (more affordability) and the emotional upsides (less overall stress). They love the ease of getting around because there is less traffic. They comment on how their kids are getting a better public school education and there isn’t as much academic/social pressure for their children to achieve impossibly high standards. They love the general sense of feeling like they can slow down and have a little more time.

So why on earth would anyone willingly choose to live in a HCOL area? Financially, it seems like a disaster. There are plenty of reasons why someone would make this choice; here are three:


The Silicon Valley in the Bay Area, the start-up/tech epicenter, attracts talent from all around the world. There is only one Wall Street, and it’s in New York City. The types of jobs and opportunities in these areas are unique and one-of-a-kind. Sure, there are plenty of other tech and finance hubs around the country, but people will still place a premium on name-brand locations. If you have a spouse that works in these industries, then by default, you’ll find yourself making a home in a HCOL area.

Thankfully, the DVM degree is flexible and in-demand, no matter where you live. Of course, there are certain positions (board-certified specialists, academics, large and mixed animal practice, government) that are in shorter supply and more location-dependent, but luckily for the DVM’s out there, many of these jobs are still within reasonable cost of living areas.


Many people choose where they live because they are returning to their hometown, and/or they have strong social connections in the form of family, friends, and colleagues.

It is impossible to put a price tag on these social connections. These are the relationships that truly sustain happiness levels (as long as these are positive social connections!). You could be the richest, wealthiest person in the world, but without that human connection and a sense of belonging and purpose, you could also be quite miserable.

The ability of grandparents to watch the kids is a godsend for many young families. Living a few towns over from your childhood bestie and getting together for a night out on a moment’s notice is enviable. Being a short drive away from extended family is a non-negotiable for many people. You simply cannot discount the importance of having a strong sense of community and connection wherever you happen to be.


Do you like the fast-paced life of a major city, or the rural countryside with its abundance of open space? Are you an avid skier who needs to live near the mountains, or do you feel more at home by the beach? Luckily as a DVM, you are needed in all of these locations.

Our surrounding environment can have a huge impact on our general wellbeing. There are some places that are a better “fit” for us compared to others. We also have to remember that this can change according to our life stage. Maybe the big city life was great as a young adult, but now the suburban life is a better fit when you’re raising kids.


Financially, what does it mean when you choose to live in a LCOL versus a HCOL? Essentially, living in a LCOL area allows you the opportunity to increase your cash flow.

Decreased cash flow is what causes a budget to feel very tight, leaving little wiggle room. In a HCOL area, your housing alone will take up a significant after-tax portion of your take-home pay, and this will no doubt squeeze the rest of your spending. Even if you see a decrease in pay when you move to a LCOL area, those dollars will be stretched further, and you will actually begin to see a larger positive cash flow as a result.

What does increased cash flow look like? In the example comparing Cincinnati to San Francisco, let’s focus on one factor: housing costs. Here is an example using the cost of renting an apartment. These numbers are from the Bankrate cost of living calculator that was used earlier in the post:

$3,457.66 (San Francisco)- $819.27 (Cincinatti)= $2,638.39 (monthly savings)

$2,638.39 x 12= $31,660.68 (annual savings)

What could you do with an extra $31,660.68 per year? I can think of plenty:

  • Accelerate debt payoff
  • Contribute more to retirement
  • Invest outside of retirement
  • Build up your savings more quickly
  • Donate more to charity.
  • Have more “fun money” for discretionary spending

It becomes a numbers game. You cannot have a larger portion of your take home pay go towards housing and expect to maintain your spending across all other categories. The numbers just don’t work, unless you’re bringing in enough income to offset that difference. It will be up to you to crunch some numbers and see if that higher income is enough to make up for the cost of living in your area.

Unfortunately for those that live in a HCOL area, there are some tough choices that you need to make. Do you want the bigger house or the nicer car? Do you want to shell out for private tuition or spend that money on extracurricular activities instead? Do you want to eat out more or take a nicer vacation? Because in HCOL areas, you can’t substitute “or” with “and.” The math simply does not work.

All of these expenses add up, and if you’re not making intentional choices with how you spend your money, you will find yourself working harder and harder just to maintain the lifestyle you’ve chosen. You’re eliminating chances to build your net worth. You’re giving yourself fewer choices down the line.


Ultimately, where you live is a deeply personal decision that needs to feel right to YOU. Just picking up and moving is not a decision that is to be taken lightly. Finances should play a role in your decision, but as you can see, there are many other factors that must be taken into account.

No matter your financial situation, it always makes sense to run some numbers and calculations to determine if you are on track to achieve your financial goals. Next, you need to take into account all of the quality of life factors, such as social connections, physical environment, personal fulfillment, sense of identity and purpose, and time for non-work related activities. If need be, physically write down a pro and con list on a sheet of paper and start comparing. Assign numbers to quality of life factors to rank how important they are to you.

If you decide to live or stay in a HCOL area, you may need to come to peace with delaying your financial goals by a certain number of months or years in order to stay where you are. Achieving your goals is not a race, and the important part is knowing that you’re on track and that you are still financially stable.

However, if you run your numbers and see that what you’re currently doing is not financially sustainable, then it is time to think outside the box and find ways to engineer a life where you don’t feel like you’re constantly struggling. When reconsidering your money and life goals, don’t forget the potential huge leverage you have with geographic arbitrage.

Have you resorted to geographic arbitrage? Are you thinking about it? Comment below!


  1. xrayvsn on April 24, 2019 at 6:09 pm

    I fully attribute geographic arbitrage as one of the top 2 factors (the other being a high income earner as a physician) for me getting to the place I am currently. I wish I could say I was a genius and chose this place because of a calculated maneuver but it was blind luck.

    I found my home on Ebay, fell in love with it (has 2 natural waterfalls right in my backyard, the biggest almost 50 ft which I can see from my house) and bought it on the spot. Only later did I find that the area I moved to was the ultimate place for geographic arbitrage. I went from a high state income tax to one with no income tax.

    Housing costs are much smaller as well. This property in California would easily be worth 10s of millions. I got it for a fraction of that.

    • Financial Wellness DVM on April 24, 2019 at 11:02 pm

      It’s crazy to see how much of a difference it makes! Housing costs have really gotten out of control in some areas, and I keep wondering how that’s sustainable. It’s just a shame that people are being priced out like that.

  2. The Vetducator on May 6, 2019 at 11:13 am

    This was one variable keeping me in Athens GA for so long- I thought, “I could never afford to live anywhere else with a vet school!” Or wouldn’t want to. Vet schools are either in the middle of nowhere (Stillwater, Pullman, Starkville) which may not be very exciting places to live, or in very expensive places to live (Fort Collins, Madison, Davis, Philadelphia). For academics, there aren’t many schools in desirable and affordable towns, which definitely affects our decision-making when it comes to job selection.

    Along the same lines, whenever people rave about the salaries of specialists in private practice compared with academia, I don’t think they consider geographical arbitrage in their calculations. There aren’t many specialty practices in small, affordable towns. A friend got a job in San Diego and, even though his salary is higher, his disposable income will take a major hit compared to when he was on an academic salary.

    • RLDVM on May 6, 2019 at 10:03 pm

      Living in these premium areas basically require a cost of living tax to reside there. As long as people are aware and adjust their expenses in other ways, then this shouldn’t be a problem. Of course, it’s never that easy!

Leave a Comment