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Get Ahead in a Starter City

It's nearly impossible to get ahead financially while living in certain metropolitan hotspots. Get your footing in an affordable location instead.

I just moved from Palo Alto, Calif., to Baltimore.

No, I'm not crazy. Just broke.

I lived three years in Palo Alto enjoying the beautiful weather, a pristine neighborhood and close proximity to family. But I soon realized that if I stayed, it would be nearly impossible to reach my financial goals. My husband Jeremy and I were spending nearly half of his take-home pay on rent, our grocery bill was eating us alive, and we couldn't afford to buy a house. We didn't have enough money at the end of the month to boost our retirement savings, start a college fund, pay down student loans or take a vacation that didn't include a stop on a friend's or relative's couch. So we decided to pack up and start over in a more affordable city.

You've heard of a starter home, a starter car, even a starter marriage (heaven forbid). The idea is to begin somewhere until you can afford to move on to something better. For young adults on their own, a starter city operates on the same principle. Starting out in a cheaper locale may be just the ticket to get your financial footing.

Cost of living

If you're struggling financially, your location may be the culprit. Start your independent life in such metropolitan hotspots as Boston, New York, San Francisco or Seattle and you could live like a pauper, struggling to find the money to pay down debt, begin investing, buy a home or start a family. The cost of living in San Francisco, for example, is 83% higher than the national average, according to Sperling's Best Places. New York is 65% above the average. In other words, the hype and romance surrounding these cities may not be worth the cost.

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Begin life's journey off the beaten path, however, and you could live more comfortably and get your finances on track much easier. That's not to say you have to live in Mayberry. There are plenty of cities nationwide with a low cost of living, a booming job market and plenty of entertainment options. (We identify our favorites a little later and show you how to find a good match.)

And you don't have to make a long-term commitment, either. Three to five years may be all it takes to pay off your student loans, jump-start your savings and build the foundation to your career. Your starter city may even allow you to buy a home and build up equity, making it easier for you to buy a place in your dream location when you're ready to move. But be warned: You may enjoy the lifestyle of your starter city and the money you save so much that you may not want to leave.

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It didn't take long for Jeremy and me to learn first-hand that the San Francisco Bay area wasn't the friendliest place for cash-strapped young adults trying to get ahead financially. The median home price, for example, is nearly $850,000. (The national median home price is $223,800.) A 20% down payment would cost $170,000. And even if we won the lottery and could actually scrape that money together, our monthly payment would still have been about $4,300 -- or $51,600 a year (considering a 30-year fixed-rate mortgage at 6.5%). And that doesn't include the cost of property taxes, insurance and other extras that come with homeownership. (See the True Cost of Owning a Home.)

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Sure, with a higher cost of living comes a higher salary. But your extra pay may hardly keep pace with your expenses. For example, an entry-level accountant in San Francisco makes about $47,886 per year, according to the experts at Salary.com. In Austin, Texas, however, he'd make about $37,800 to start. That's 21% less than his West Coast counterpart. However, housing prices in Austin are about 79% lower than in San Fran, and the overall cost of living there is nearly half. So even on $10,000 less, his living costs are dramatically lower, enabling him to live much more comfortably.

Our favorite cities for young adults

Kiplinger's researched the best cities in the U.S. and came up with picks for different stages in life, from young singles to retirees. We looked at affordability, income growth, diversity and the so-called creative class -- how many scientists, engineers, architects, educators, writers, artists and entertainers call that place home. For singles, we also looked for places with plenty of things to do. For young families, we looked for low crime rates.

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Our top five cities for young professionals:

  • Washington, D.C.
  • Denver
  • Austin, Tex.
  • Raleigh, N.C.
  • Lexington, Ky.

Our top five cities for young families:

  • Atlanta, Ga.
  • Minneapolis/St. Paul, Minn.
  • Des Moines, Iowa
  • Provo, Utah
  • Green Bay, Wis.

Get more information on our criteria, and the crucial cost-of-living stats for each city in our Best Cities for Young Singles and Best Cities for Married With Kids slide shows.

We understand that when it comes to best cities, one size doesn't fit all. So check out our tool to find out which city is best for you. You simply answer 14 questions, and we pinpoint the metro areas in the U.S. that best suit your individual goals and tastes.

Make a plan

As for my husband and me, we don't plan on staying forever in Baltimore -- probably five years tops. We figure that's long enough to get our finances on the right track. In fact, we've been here only two months, and we've already boosted our savings with the money we're saving on rent -- and we just bought a house. So far, we're already on a better financial path and living a more comfortable lifestyle.

I know the decision to move may not be easy. Many young adults choose their address to be near friends and family, or because they received their dream job offer. I'm not saying that everyone should cut all ties and run. But if it makes sense for your personal situation, a short-term relocation could pay off big.

It boils down to this: You can choose to scrape by in certain metropolitan areas, or you can build a financial foundation in an affordable starter city. If you can help it, don't let your address stand between you and your goals.

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