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By Beau Peters
Special to Financial Independence Hub
There are many reasons that people may move to a new state or province, including job opportunities, a change of pace, or wanting to be closer to family. However, one of the major factors in relocating is that where they currently live is more expensive than where they could be.
It’s easy to live in the now and make a drastic change because you believe the grass is greener on the other side, but you must also prepare for the future, and be aware of how your finances could be impacted when you move across state lines. Here are a few long-term financial implications you’ll want to keep in mind before you go.
Cost of Living
Some people move to another state because they like the weather or have friends they want to be closer to, but they’re shocked when they realize that the price of living is exponentially higher than the place they left. Some states have higher prices for the things we buy most, and the costs will likely stay that way for the foreseeable future.
We’re not just talking about the price of milk or groceries either. Costs can vary for many products and services, including healthcare, utilities, gasoline, etc. Before you relocated, research how the costs will affect you personally. You may want to reconsider if you know you’ll have a long commute to work and discover that you’d be paying 50 cents more per gallon of gas. Search online for a cost comparison calculator, which you can use to research the potential costs and make an educated decision.
Sometimes you must move for non-negotiable reasons, such as job opportunities or to be closer to family. If that’s the case and you know that the new state will be more expensive, then you may need to make some adjustments now to reduce costs — especially if you’re moving with young children. Though the actual process of moving with young kids can be difficult, there are ways to mitigate those challenges before, during, and after the move. Mapping out the route you plan to take ahead of time and arranging for childcare the day of the move are both ways to reduce stress during your relocation.
However, beyond the move itself, you have to be prepared for higher costs while raising your children, which may mean dealing with more expensive childcare, healthcare, and school expenses for years to come. These expenses shouldn’t necessarily prevent you from moving, but you should take them into account to ensure you’re making the right decision for your family and finances.
Taxes will be Different
Many people get excited because they hear that the cost of living is less in another state, but they often forget how taxes come into play.
One talking point that gets a lot of folks fired up is when a state doesn’t have an income tax. That’s the case in nine U.S. states, including Florida, Nevada, and Washington. However, you may not save as much money as expected because the states need to make that money up somehow. They often do so by charging more for sales, property, and estate taxes. If you buy a home, the property taxes can be a significant shock every year, so do your research.
If you’re planning on living in the new state for the rest of your life, you’ll also want to consider your retirement and how taxes may cause an issue when you reach that age. Some states do not tax your retirement income. A few of them include Texas, Wyoming, Nevada, and Florida, among others. So that could be a big deciding factor for where you move. Thirty-eight states don’t tax social security, including California, Florida, and Illinois. So if you plan to take money out of that pot, these states may be for you.
Depending on the state where you live, you may well be taxed for your retirement income when you start to collect it down the line. You need to think about that because you’ll need to budget accordingly to make ends meet when you’re no longer working.
Investments and Future Work
If you have other income streams, such as investments or side work, you’ll need to think about that before you move. You’ll likely need to pay attention to your investment portfolio and make a few tweaks.
Each state has different capital gains rates that may affect the taxes associated with your particular investments and how much you pay. Most states tax the same amount for regular income as investment income. However, some of them tax your investments less than your regular income. Some states also provide tax breaks. Long story short, you need to review your portfolio to ensure you’re getting the best deal.
Some people work a side gig to earn passive income before or during retirement, and if you’re one of them, you’ll need to consider the details of the new state. For instance, if you plan to earn money by renting out your home as an Airbnb, you’re free to do so, but some states will have different rules about licenses and taxes. Look at the rules in your state and determine what you’re willing to do if you live there.
Other forms of passive income won’t require a significant investment upfront, such as advertising on YouTube or selling a class online. Still, you should research the new state’s rules so you’re not surprised.
Take the time to fully understand the long-term financial implications of moving to another state, and you’ll be ready for anything.
Beau Peters is a creative professional with a lifetime of experience in service and care. As a manager, he’s learned a slew of tricks of the trade that he enjoys sharing with others who have the same passion and dedication that he brings to his work. When he is not writing, he enjoys reading and trying new things.
