When the government reports that CPI (inflation) is down, it doesn't mean we're out of the woods, it just means things are getting worse more slowly. Think of it like this: If you're on a roller coaster, the thrill comes from the rapid acceleration, like taking off in an airplane. But once you are at cruising altitude, you cannot tell you're moving.
Inflation is similar. Whereas acceleration is a change in speed over time, inflation is a change in prices over time. As we get better inflation reports, that does not mean prices are going back to what they used to be; it means they're not climbing as fast as they have been. Prices will still be high, and that pinch in your wallet is a constant reminder.
As people realize this, they find themselves facing a tough reality: the cost of living and the lifestyle they enjoyed a decade ago might no longer be sustainable. Bank statements, credit card bills, and shrinking savings tell us something has to change.
In this post, we'll dive into the three choices people have and why so many families are opting to relocate from high-cost, high-tax cities. It all boils down to economic preservation.
As more taxpayers move out, local governments will hike taxes to fill the gap. We're not off this roller coaster yet, but there's a way to step off—and Austin could be the perfect landing spot.
This is part 2 of a previous post titled: Why Financial Clarity Is Key to a Successful Relocation.
In 2020, lockdowns and social distancing became the rule. This accelerated trends like working from home and virtual meetings. That shift, which might have taken a decade to unfold, happened in a year. Now we are dealing with a bigger follow-on problem. You've heard the saying, the cure is worse than the ailment? That's where we are now but there is a possible solution.
In this post, we reveal: 1) why so many people are leaving high-cost cities, 2) how long prices will stay high, and 3) practical steps families can take so money is not a constant source of distress. If you have not read part 1 of this post, you can by clicking here.
Inflation is a tax on buying power. It is terrible and extremely hard on older citizens living on a fixed income. It is also rough on young people trying to pay off student loans and/or buy their first house. Inflation leaves people wondering, "Why can’t I afford a house, a car, groceries, tuition, medical bills? What is going on?"
As prices rise, people face tough choices: consume less, substitute for cheaper alternatives, or relocate somewhere with an overall lower cost of living. We often hear people say:
Everyone is aware of how bad inflation is and has been. The chart below shows fast food price inflation. Over the past ten years, while reported inflation was 31%, fast food prices increased as much as 100% (McDonald’s).
Price increases of 31% - 100% will mess up any budget. Zooming out beyond fast food, check out the chart below, which shows how much consumer prices have gone up since February 2020.
The numbers above are government CPI component numbers. Housing, for example, includes renting houses. It's actually worse for those looking to buy a house. The Case-Shiller Home Price Index shows US home prices have gone up by 47.1% since 2020.[1] How are young people supposed to buy their first house? And we are not even talking about the payment shock from high mortgage rates, which we wrote about here.
On the flip side, today's high house prices are good news for those selling and relocating someplace cheaper. You've heard the adage: sell high, buy low.
Inflation is a significant challenge for everyone:
When your outgo exceeds your income, your upkeep becomes your downfall. --Jim Rohn
There are only three ways to combat rising prices and a budget shortfall:
Most people cannot meaningfully earn more. If they could, they already would. In fact, many people are already working more than one job. So, let’s forget that one. And nobody likes option two.
Our family chose option three (relocate) and it has been a great decision. Our lifestyle improved and it has been much easier to save for retirement and help with college expenses. Paying zero state income taxes has really helped.
There are people who can easily afford to live anywhere in the world, but they are a small minority. For everyone else, the gap between wages and prices has gotten worse and something has to give.
Government appetites for taxes and spending show no signs of slowing down, which means inflation is not going back below 2%, like it was in the previous decade. The U.S. national debt is rising $1 trillion every 100 days.[2]
Even if the rate of inflation goes down, that does not mean prices are going back down. You often hear the government and media talking about how inflation is coming down—they are talking about the rate of inflation, not prices!
If the wind speed drops from 90 mph to 35 mph, it is still windy. When the Consumer Price Index (CPI) goes from 9% to 3.5%, that does not mean prices are dropping; it means prices are not rising as quickly. However, prices went up a lot and they are still going up.[3]
Sadly, as the Federal Reserve chart shows below; prices almost never drop. Sometimes prices go up slow, sometimes fast, but they consistently go up.
This is why it is hard to imagine how much our parents paid for the house we grew up in, or what they paid for a new car, or a gallon of gas. If you feel like your income is not keeping up, you are correct. Check out the Federal Reserve chart below. This one shows how home prices have changed (black line) over the past 22 years and how incomes (blue line) have not kept up.
When you hear how awful home price affordability is, it is true and the chart below shows that the gap has never been greater.
You want to talk crazy: government CPI (Consumer Price Index) numbers do not take into account interest rates on debt. If someone has credit card debt, and their interest rate goes from 7.99% to today’s average APR of 22.63%. If you could invest at 22.6%, your money would double in just over 3 years.[4]
High rates make it so much more difficult to pay off a balance, a challenge 48% of U.S. Households are dealing with as shown below.[5]
If interest rates remain elevated, budgets will not get better, regardless of what the government reports CPI to be. Check out the following chart, which shows outstanding credit card balances since 1999 and you'll see the consumer is maxed out. Student loan charts are equally scary.
Remember, the puzzle we're trying to solve is: how do we maintain (or improve) our standard of living and get ahead on finances? We'll get to that soon.
Each year, Gallup asks Americans what is their top financial problem. Until 2020, cost of living was cited, on average, by less than 10% of U.S. households. Now, cost of living (inflation) and the cost of owning or renting a home represents 55% of Americans' top concerns - see chart below.[7]
For those living in high-cost metros around Chicago, New York, San Francisco, Los Angeles, San Diego, and Orange County, it makes sense that they would consider moving out-of-state because it is unlikely they will be able to increase their incomes enough to overcome these concerns.
Along similar lines, the chart below shows the percentage of Americans struggling with emergency and retirement savings.
And this chart shows recommended vs. actual retiree savings.
The point of these graphs is to illustrate that you are not alone, especially those living in high-cost states. And there is something that can be done about it—relocate somewhere with lower: income taxes, cost of housing, gasoline, etc.
You have long heard hope is not a strategy. However, executing a well-designed plan that has a high likelihood of success can restore faith and hope. People can endure almost anything if they have hope. Step 2 of our unique relocation process is about getting clear on the numbers and then doing something about what the numbers reveal. The quicker you adjust course, the faster you'll get where you'd like to be.
A well-designed plan may be to live on a budget and not move. Or, it may be to move somewhere less expensive and use some of the sale proceeds from the house to pay off debt, pay for college, and fund important insurance or retirement initiatives.
All progress starts by telling the truth, is something Dan Sullivan teaches. Another is: when we don’t know what’s working and what’s not working, we can’t adapt, improve, or grow.[6]
Most of us received little or flawed personal finance training—they don’t teach it in high school or college. The problem is, the topic of money is so big, it’s overwhelming. When humans are overwhelmed, they stop paying attention.[8]
How to get unstuck and on track:
Be sure to factor taxes and inflation into your projections. The cost of things is likely to go up faster than our incomes. You want to build some margin or a buffer into your budget.[9]
While our Financial Clarity Questionnaire™ and Financial Clarity Conversation™ are the cornerstones of Step 2- Financial Clarity, we offer additional tools to help our clients really get their arms around all this.
Considering Austin has partnered with an amazing software platform called Savology. Our clients get a free subscription to this amazing DIY financial planning tool and financial literacy resource. We explain all of this during our Financial Clarity Conversation™.
Below is a look at Savology. I have never seen a simpler, more understandable tool to help get your arms around all things financial. It is fantastic.
What Savology offers:
Step 2 of Considering Austin’s unique Six-Step Relocation Process is Financial Clarity and we feel it is a valuable two-hour investment for anyone and everyone. We all get busy and do not make the time to review our finances to ensure they are aligned with the direction we want to go.
Once you understand your numbers, you can make a more informed decision about whether relocating to Austin (or anywhere) makes sense for you.
Please think holistically. Relocation is not just about moving or money, it is also about lifestyle, peace of mind, and the pursuit of happiness. From a financial perspective, determining if relocating is optional or necessary is an important first step. Maybe relocation is not the answer, but considering it is a worthwhile exercise.
Next steps may include:
Step 2 – Financial Clarity is about managing money to live our best life. We hope this article illustrated why financial clarity is empowering and crucial for a successful relocation to Austin. To explore your unique situation, please contact us at (512) 981-8279.
[1] ResiClub analysis - US home prices have soared 47% since 2020, Mary K Jacob, 5/13/24, New York Post: https://nypost.com/2024/05/13/real-estate/us-home-prices-have-soared-47-since-2020/
[2] The Washington Times - U.S. national debt spiraling out of control, rising $1 trillion every 100 days, staff, 3/4/24: https://www.washingtontimes.com/news/2024/mar/4/us-national-debt-spiraling-out-of-control-rising-1/
[3] Harper’s Magazine – Numbers Racket, Kevin Phillips, May 2008: https://harpers.org/archive/2008/05/numbers-racket/
[4] Brownstone Institute - Is the Global Inflationary Depression Already Here?, Peter St Onge, Jeffrey A Tucker, 6/25/24: https://brownstone.org/articles/is-the-global-inflationary-depression-already-here/
[5] LendingTree 2024 Credit Card Statistics, Matt Schulz, Dan Shephard, 6/24/24: https://www.lendingtree.com/credit-cards/study/credit-card-debt-statistics
[6] Shannon Waller’s Team Success podcast – Extraordinary Coach Culture: All Progress Starts By Telling The Truth, 4/24/18: https://yourteamsuccess.com/extraordinary-coach-culture-all-progress-starts-by-telling-the-truth/
[7] GALLUP - Americans Continue to Name Inflation as Top Financial Problem, Jeffrey M. Jones, 5/24/24: https://news.gallup.com/poll/644690/americans-continue-name-inflation-top-financial-problem.aspx
[8] Mindful – The Brain Science of Attention and Overwhelm, Amishi Jha, 11/5/20: https://www.mindful.org/youre-overwhelmed-and-its-not-your-fault/
[9] Considering Austin is not licensed to provide tax or legal advice. Your tax totals will depend on many variables - consult your tax advisor: https://www.consideringaustin.com/licensing-disclosures