Location: Beating the Market by Saving?

[FallenApple]

So if I decide to live in a very high cost of living area of the United States, presumably because supply and demand would imply that the income is higher since businesses can only charge what they do if the local residents can afford it, would I be better off living there? Based on that basic economic assumption, if I decided to be very frugal and only foot the bill for living and food while cutting back on everything else, would my saving's purchasing power, across the world, exceed the purchasing power of people living in other less income lucrative states/countries for the same percentage point? If yes, then I think its a good strategy.

This is an important question because its essentially my attempt at making a big profit out of saving money.

 

[scottdave]

The earlier you start investing, the better off you will be in the long run, as you will have more years of compounding. I don't know if theret is data to support this, but if you are in a high cost of living area, there probably is only so much frugalness and cost cutting you will be able to do. I'm not sure which one would be an advantage. Another thing to think about is the tax rate on your earnings in the locations you are considering.

 

[FallenApple]

I think compounding is a game that everyone can play. But I think some mathematics and knowledge of psychology would help in my assessment. Generally, the higher the income compared to the cost of living, the more people should on average should perceive an equitable rate of return on their investment and lower diminishing loss on bad ventures. Which mean they are more willing to spend on products they like because they, very well, may have overinflated egos from their status compared to contiguous economies.

 

[Tom.G]

Living in a high-cost, high-income area (Southern California), I have noticed that people take advantage of moving to lower cost areas after retirement. The apparent advantage of living here is the higher wages contribute more to Social Security taxes (federal government retirement fund open to almost everyone), thereby increasing your retirement income. The banks here also pay much higher than average interest on longterm savings. If you choose to buy a home/property here, the annual price inflation has exceeded the national average for decades.

The Silicon Valley area in Northern California takes the above to an extreme, but I hear that the cost-of-living may outpace the income. There are a few people on this site that reside in that area. Perhaps they can better address this.

 

[Rive]

...supply and demand would imply that the income is higher since businesses can only charge what they do if the local residents can afford it, would I be better off living there?...

No. This logic if you put it this way is a very sophisticated cargo cult, but it is still just a cargo cult. The financial power depends on those who lives there, not on the area itself. If a poor man moves into such an area he will just gets higher bill for living and nothing else => instead of getting rich he will just spend more.

Ps.: high living cost areas usually comes in pairs with some kind of high-payments areas (this is what gives the financial strength to bear the high living costs). Also, sometimes it is hard to get those jobs if you do not live in a specific area. But while it is complex and might look like moving being the reason to get rich, actually it always starts with the job.

 

[FallenApple]

No. This logic if you put it this way is a very sophisticated cargo cult, but it is still just a cargo cult. The financial power depends on those who lives there, not on the area itself. If a poor man moves into such an area he will just gets higher bill for living and nothing else => instead of getting rich he will just spend more.

Ps.: high living cost areas usually comes in pairs with some kind of high-payments areas (this is what gives the financial strength to bear the high living costs). Also, sometimes it is hard to get those jobs if you do not live in a specific area. But while it is complex and might look like moving being the reason to get rich, actually it always starts with the job.

I live in the Bay Area and I found out that my rent, while exorbitant, still only accounts for about 1/4 of my monthly earnings. It's not bad, but I want to know if I can get a better ratio say in New York. Ideally, I want to get that ratio down to 1/6 if at all possible for the same work I put in.

 

[FallenApple]

Living in a high-cost, high-income area (Southern California), I have noticed that people take advantage of moving to lower cost areas after retirement. The apparent advantage of living here is the higher wages contribute more to Social Security taxes (federal government retirement fund open to almost everyone), thereby increasing your retirement income. The banks here also pay much higher than average interest on longterm savings. If you choose to buy a home/property here, the annual price inflation has exceeded the national average for decades.

The Silicon Valley area in Northern California takes the above to an extreme, but I hear that the cost-of-living may outpace the income. There are a few people on this site that reside in that area. Perhaps they can better address this.

I was thinking about moving overseas to Asia for retirement where the US dollar has a lot of buying power. I won't be able to use Social Security then, but I think it will pan out. I'm feel bit wary about getting a home in the US if its not done with cash. Mortgages feel a bit risky especially if the market tanks, which it did in 2008.

I live in Silicon Valley. It is indeed true that rent and food is more expensive here. It almost feels like everything is a ripoff. But then again, the pay here is cosy. I'm just trying to maximize leftover money and never use it on overpriced entertainment where I can use that same money to buy banquets in say Thailand.

 

[Vanadium 50]

I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.

 

[FallenApple]

I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.

Debts are liabilities. It's important to not have them. I've never said skipping out on them is a good idea if one can pay comfortably, but if one is hit with a huge medical bill, then clearing it through bankruptcy or moving may save more money in the long run. Basic math.

If the fraction cannot be determined, then how is one supposed to come up with a good strategy?

 

[Klystron]

I'm not sure that there is anything fruitful in discussing finances with someone who considered skipping out on debt an investment strategy, but this whole discussion is based on an unproven (and dubious) assumption: that one can save a constant fraction of one's salary, irrespective of cost of living.

I was born in Long Island, New York; raised in Cupertino, California; college in Santa Barbara, San Jose and San Francisco; worked and lived for several years in Bangkok (Kung-Taape), Thailand. So, I have some direct experience of the people and economies of the places the OP mentions.

The locals where I retired have an expression for (politely) residents with attitudes expressed by the OP: tourist.

 

[Mark44]

Debts are liabilities. It's important to not have them. I've never said skipping out on them is a good idea if one can pay comfortably, but if one is hit with a huge medical bill, then clearing it through bankruptcy or moving may save more money in the long run. Basic math.

Define "if one can pay comfortably..." My view is that if you owe someone some money, you owe the money, whether or not you can comfortably repay it. When you take on a debt, you are promising that you will repay it. If you skip out, it means that your promise was worthless.
In your previous thread, and that @Vanadium 50 referred to, you said this:

I'm the type of person that refuses to be slave to financial liabilities. I'm sure that in such a scenario, I would try bankruptcy first, while at the same time packing my bags just in case.

The only circumstances in which I would sell something to you would be cash on the barrelhead.

If the fraction cannot be determined, then how is one supposed to come up with a good strategy?

A study of economics would be a good start. Why would you think a site devoted to physics and the sciences would be a good place to get information?

Thread closed.