Two studies came out last week, one by LendingTree on the best cities to pay down debt and one by WalletHub on the best and worst states to retire. I found the study on paying down debt particularly interesting for what it cites as the main indicator that you’re in a good place for working on becoming debt-free: the rent-to-income ratio in every city in the top 10 was less than 20 percent, meaning you’re paying less than 20 percent of your income toward your rent or mortgage on a monthly basis. Other cost-of-living factors also have an influence but since housing is the largest component of most budgets, it’s a no-brainer that what you pay to have a roof over your head will impact how much you can pay down student loan debt and pay up on your retirement savings.
How does this relate to the benefits you receive? Well, more companies are offering benefits in lieu of higher salaries. As such, when you look at your “total compensation” that a company is willing to pay you, pay close attention to the value of the benefits. Are they offering student loan paydown? What kind of 401(k) match do they give? If they’re offering you an HDHP, are they also giving you an HSA contribution and, if so, how much? All of these “benefits” amount to added income for you and should be figured into your budgeting and calculations of rent-to-income ratios, which could make even cities that didn’t make the list look even better — or could make cities that are on the list look worse if your income and benefits aren’t on par with cost of living.
On the flip side, this list focuses on cities. If you are able to work from home or otherwise telecommute, and you’re willing to live further from a city center or in the country altogether, you’re likely going to get your ratio way down, which will greatly boost your savings potential, which will in turn compound itself over time.
Regarding where to retire, again, your combination of income and benefits are important, but then you also add in factors like cost of health care, income tax, property tax, etc. All in all, there are some great places on the list where you can live…and there are some places that you may personally love but they’re not going to do you any favors in making your dollars or health go further in retirement.
One more thing to consider above all else: What makes you happy? I live in Charleston, which is not the most expensive city in the country but also not the one with the lowest rent-to-income ratio. But it’s a beautiful place and I love raising my family here, so I’ve done and will continue to do what makes the most of our place in the here and now and in the future. Love the place you choose and be sure you’re not giving away too much in the present for a greater future — but also know that the right sacrifices will lead you to your right path to happiness.
Here are links to the studies:
“10 Best Places to Pay Down Debt,” LendingTree.com
“Best States to Retire,” WalletHub