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If you want to make big money, you’ve got to head to the big city. New York, Boston, Miami, Chicago, Los Angeles, San Francisco. Places where $1 million dollars may or may not get you three bedrooms and two baths.
With some success and perhaps luck, the salary differential may be more than enough to make up for the increased costs associated with these large cities.
Arbitrage, the practice of taking advantage of different prices in different markets, is a strategy that can be employed in personal finance. There’s tax arbitrage, dividend arbitrage, and apparently a Richard Gere movie called Arbitrage. I’d like to discuss a different type of arbitrage today, geographic arbitrage.
What is Geographic Arbitrage (a.k.a. Geoarbitrage)?
Those of us practicing medicine are subject to a fairly unique pay structure. We’re needed everywhere, not just at corporate headquarters. Supply and demand goes a long way in determining our salaries.
Apparently, many of us prefer to live in larger cities, which creates a larger physician supply and lower demand for our services, driving down the salary potential. Fortunately, some physicians would rather be surrounded by farmland and feedlots rather than freeways. For this, they are rewarded handsomely.
Using Doximity’s Salary Map, we get a nice overview of nationwide salaries on a county-by-county basis. The heat map for my specialty, anesthesiology, looks like this. The purple counties represent an average salary in the $350,000 range, whereas the deep red counties exceed $410,000.
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You’ll notice quite a few gaps on the map, particularly in the sparsely populated areas of the Great Plains. Let’s dial up the heat map for a more common specialty, family medicine.
The blanks have largely been filled in with a deep shade of red, confirming that there is a distinct increase in salary to those who are willing and able to live in more rural areas of our great nation. The discrepancy isn’t huge, but the range is from about $210,000 to over $250,000.
How is the outlook for our general surgery colleagues? The heat map looks strikingly similar, with a range starting around $330,000 to better than $380,000.
Geoarbitrage and cost of living
It’s helpful to know that you can earn 15% to 20% more by living in middle America. Salary is only one component that helps determine your ability to boost your savings rate; expenses are another key factor. Where do you suppose it costs more to live? I think we already know the answer, but I heart numbers, so let’s dive into some real data.
According to Doximity, a general surgeon in New York City can expect to earn about $333,000. Meanwhile, his pheasant hunting counterpart in Sioux Falls, South Dakota will pull down better than $383,000, a difference of $50,000.
The internet is not suffering from a lack of cost of living calculators. We’ll look at a couple results to compare the cost of living in Manhattan to Sioux Falls.
According to CNN Money, a surgeon earning $330,000 in New York would need to earn $137,232 to live with similar spending habits in Sioux Falls. Conversely, the physician in Sioux Falls earning $380,000 in Sioux Falls would require $913,781 in Manhattan to enjoy the same level of spending there.
Is it all about the money?
Clearly, compensation and your ability to save are very important to your financial well-being, but they are not the only considerations in your overall well-being. Other factors need to be considered, and may very well carry more weight.
Some subspecialists are going to be geographically limited. Laramie, Wyoming probably doesn’t need multiple pediatric neurologists. They might be lucky to have one that travels to see patients in town once or twice a month.
Academic medicine can only be practiced in academic centers. North Platte, Nebraska has none, although they do have the world’s largest rail yard.
Then of course, there is the need for culture / restaurants / museums / shopping / diversity / professional sports teams, etc… If you have a burning desire to be surrounded by them all day every day, a medium or large city might be the only place you can be happy.
If, on the other hand, you can live with limited access to these things some of the time, with the ability to travel to the big cities at other times, you might find you can be happy in places you might have never dreamed of considering.
Living in middle America, with an extra $50,000 a year in salary, and drastically lower living expenses, you can have a very generous travel budget.
When you live in a small town like I do, your commute doesn’t have a rush hour, and may not even involve an automobile. I ride a e-bicycle to work when the weather allows, and there’s no place around town I can’t be in about 20 minutes on a bike. More exercise for me, less wear and tear on the car, and more money in my pocket.
Small town living isn’t for everyone; my wife and I both grew up in small towns, so it suits us well. I’m not trying to convince you to move to the cornfields of western Iowa or the mountains of Montana. As I often do, I’m simply presenting a less ordinary way to live, and the advantages that of doing so.
Geographic arbitrage, with a beautiful combination of a higher salary and lower cost of living, has worked very well for us.
Do you take advantage of geographic arbitrage? Could you see yourself living in middle America or another low-cost of living part of the nation (or world?) Why or why not?
81 thoughts on “Geographic Arbitrage: How Geoarbitrage Makes the Great Plains Great!”
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Here’s my situation. Tax free income living in WA. Short drive across the bridge to Portland OR for no sales tax shopping. Cost of living better than prior home in CA.
Smart on several fronts. Living near a state border can allow you to optimize income taxes, property taxes, sales tax, etc…
Cheers!
-PoF
This is great food for thought. We live near DC at the moment and while it’s not one of the most expensive markets, it’s certainly not cheap. We are planning to move in 2-3 years and have considered moving to a lower cos of living area. This is definitely helpful information and I really appreciate the perspective.
And the numbers certainly don’t lie!
My husband and I recently practiced some Geographic Arbitrage: we sold our urban condo and moved to a small town six hours away. The condo had almost doubled in price in the 8 years we owned it and we had paid off a good chunk of the mortgage. We bought a nice but modest house in the small town for 40% of what we sold the condo for. We are now much closer to retirement and with the move to the small town our cost of living has dropped 30%+. My husband has left his stressful and travel heavy – though lucrative! – job in marketing and now works part-time from home consulting. I’ve worked from home as a freelancer since the kids were little. We’re now considerably closer to retirement and require a lot less income. I am so happy we ‘saw the light’ and realized living in the city with the high costs wasn’t the only option. I will admit it took me a few years to come around to this idea. But so far, six months into the move, we all love it. The pace is really relaxed here, the weather is great (way more sunshine than the PNW) and things like skiing and golf are so accessible and affordable. As you mentioned, we have the funds to get to a larger city for cultural events and such when we want to.
Thanks for an inspiring blog!
Good stuff and similar to what other bloggers are saying.
Alas, the world is not fair. It’s a lot easier if you’re white to pack up and move to the great plains. If you’re a minority keep in mind the culture change that may occur. I’m born in America and am pretty much American, but some of the little racist stuff starts to add up. It’s amazing that in this day in age, you can be a born and raised citizen of a country but based on first-impression you don’t belong. : /
I’m sorry to hear you’ve had that experience, PPD.
There are some bad people everywhere, but there is data to suggest that racist attitudes are more prevalent elsewhere in the U.S.
I would never suggest racism doesn’t exist in every town and city to some extent, but when I lived in Minneapolis during my undergrad and medical school years (not quite great plains, but not far off), it was among the more progressive cities in the nation, led by Sharon Sayles Belton, a black woman, as our mayor. Iowa was one of the first states to legalize gay marriage back in 2009, and Minnesota followed suit before much of the rest of the country. We still have a long ways to go, but I wouldn’t automatically rule out a vast swath of the country. There are good people everywhere, too.
Best,
-PoF
Most of my net worth in last 7 years came from living in high COLA -Boston
Ex: Home I sold in NH 10 years ago was just sold for 5% less than I bought it for
Meanwhile I made 12%/year on a condo I owned for 4 years in Boston- 250k profit in 4 years!
Plus I rolled that money into new home – paid 0% tax on profit
Nice to live cheap, benefits to living in growth area tho…
Just Sayin
Late to the game on this post, but I love it! I’ve been interested in this topic since reading a somewhat similar article which detailed one half of the equation, that being what you need to earn in different areas of the country to have achieve the same standard of living. It didn’t look at the income levels of the different locales however. In my industry, finance, it’s really true that most opportunity at the higher levels lies in the largest centres. No thanks! I decided on that a few years ago. 🙂
Yes, other MMM.
In medicine, we are in a pretty unique situation where larger centers tend to have lower pay. It’s the inverse of the typical setup in most industries. Some of my articles have circulated on bigger doctor sites, and a pediatrician from San Francisco will chime in, and ask how are they supposed to spend that little or save that much or whatever. We all have the same information available to us, and have to realize that we’re making choices. Choosing to be a pediatrician in San Francisco might make you happy and fulfilled, but it’s simply not a path to financial independence in your forties.
Cheers!
-PoF
Excellent post! In my mind, the willingness to consider geographic arbitrage is as big or possibly bigger factor in financial independence than choice of (most) specialties. One thing most people who have spent their career in HCOL areas do not realize is that you do NOT need to move to the boonies to experience the benefits. In fact, if you are not in primary care, it may be to your disadvantage to move to a small town because there are not enough referrals to justify your practice. Instead, you can be in a metro area and get the benefits of cultural opportunities, schools, etc and still do well financially.
Excellent point, pulmdoc.
I’m definitely in a rural area. I know some anesthesiologists in the urban and suburban areas earning at least 50% more than I do. I’m doing pretty well, but the payor mix (particularly in the suburbs) is tough to beat. If I had one of those jobs, even after taxes, I could sock away an extra $100,000 a year — maybe a little less due to cost of living being a bit higher. But I’ve turned down those job opportunities; we prefer small town living.
Best,
-PoF
I’ve been thinking a lot lately about where I want to settle down, establish my career and start a family. Fortunately I’m open to pretty much any location as I’m not interested in moving near my family as they all live in a HCOL city with poor physician salaries and practice environment. There are so many options and it’s hard narrowing it down though I’m pretty sure I want to be on the Western half of the US. Like others, I’m not only looking at salary, but COL, taxes, amenities (restaurants, shopping, airport), activities (outdoorsy person) and weather to certain extent. I know there are sites like city-data where one can discuss different cities, but it’s nice to have a dialogue with other physicians as we are a unique group.
The world is your oyster, my friend. You can see the heat map, but it’s not all about money as you clearly understand.
The airport is an important one. You can live somewhere with LCOL, abundant nature, great weather, but if you’re a six-hour drive from a decent airport, as a doctor, you’ll regret it. We travel too often for CME / conferences / vacation to be that far removed.
With an affinity to the West, you should have good options.
Cheers!
-PoF
Great post!!! I’m about to look for my first job after fellowship and am intrigued about all of these findings! PoF, If you don’t mind me asking, which area do you live? Could you give me a hint? 😉
What are your thoughts on Denver, Colorado? I know the COL is not low, but also from my research the state taxes are not the worse.
Hint: I’m in an orangish area up north. Not quite the deep red, but the salaries, like the children here, are all above average.
Denver appears to be bluish on the map, which is an indication of lower salary on average, but that will vary from job to job. And of course, money isn’t everything.
I do know that the Denver area is growing and the traffic can be awful. I have a friend whose 15-minute commute has morphed into a 45-minute commute over the last 10 years. Same house, same job.
I would encourage you to go to one of the cost-of-living comparison calculators and the Doximity career map to further explore your options. Good luck with the job search!
Best,
-PoF
I’m currently practicing some geographic arbitrage. About two months ago I moved from Manhattan to the upper Midwest, maintaining my same job and salary. This is most likely not a permanent thing, but I will take advantage of the opportunity as long as possible. It’s definitely sped up my path to FIRE – that’s for sure.
Awesome… and welcome. It’s a change of pace from Manhattan for better or for worse.
I like to think mostly better. The Big Apple is always a direct flight away.
Cheers!
-PoF
It’s crazy to me how few people consider these major financial factors in evaluating a move. I’ve seen people move farther from friends and family to high-expense cities just because they can “make more” — completely ignoring the expense side of things.
I managed to push back on moving to my company’s HQ in the Bay Area for years. I grew up there and love San Francisco, but there’s no way I could have saved what I did if I had been living there. Instead, I was able to earn a Bay Area-sized paycheck working remotely in a place with lower COL and lower taxes. Hard to beat that.
Strong work, Matt. And look where it got you! Traveling the world – you can always visit the Bay Area as part of your nomadic adventure.
Cheers!
-PoF
Excellent article, Dr. I have experienced the same in my profession (Engineering Managment) as well. My income is the same as what my peer earns in HQ city but cost of living is at least 30% lower. These arbitrage opportunities are rare and help one move faster on the road to FI. One key requirement is to remain mobile and not have too many roots (like owning a home) in one location. I have benefited from this during my time in the DC area by avoiding a home purchase (wrote an article on it in my blog), which would’ve totally crimped my mobility to seek new roles in different geographies. Always great to hear a smart Dr share interesting perspectives.
Thank you, 3,628,800 rocks. Good to see some others are able to take advantage of opportunities like this.
Glad you stopped by!
-PoF
Good maps! I have a radiologist friend who makes bank in North Carolina compared to my other radiologist friends who live in NYC and SF.
Is it possible to go to middle america for 20 years and save a ton, THEN move to coastal parts of the country for a change in lifestyle? Or do most people make this type of income b/c they join a private practice. I guess skills are highly fungible though right?
Thx,
Sam
It’s impressive how consistent the maps are from one specialty to another. There are pockets and individual jobs in places that are outliers. I had a chance to join a suburban group where I would make 50% more than I do now as a full partner in a private practice group. Since we’re doing well enough, already financially independent, and not interested in a move or suburban life, I politely declined. A 50% raise on an anesthesiologist’s salary is pretty huge, though. If I had ten years to go, I would certainly consider it. Then I might only have seven years to go.
I’m guessing by the time someone has worked in middle America for 20 years, the odds of leaving at that point for the coasts is fairly small. Roots have grown, kids may be enrolling in local public universities, many friends around, etc… If you wanted to get the heck out, you probably would have done so long before 20 years have passed. Doing the snowbird thing is fairly common, though.
Best,
-PoF
Great post. Everyone should come join me in Florida – no state income tax!
I could live without your hot, humid, stormy summers, but Florida’s not such a bad place. I know plenty of people who spend 6 months and a day in Florida to establish residence there. Tough to do while working, but locum tenens makes it possible.
Best,
-PoF
I love comparing different cities cost of living. I had a job offer to work in LA California at a top 2 firm in their industry but took a lesser paying job because I would keep more money in the end because my real income would be higher. Arbitrage and living smartly is truly great!
Sounds like you chose wisely. The best paying jobs in my state are not in the rural areas, but in the metro area suburbs. There are good jobs, and a higher proportion of patients with private (employer provided) insurance. A better payor mix typically equates to a higher paycheck.
Cheers!
-PoF
Great post PoF! I will add one more factor into the mix – taxes. There can be a greater than 10% difference in taxes depending on your spending, earning and housing patterns. If you are making 400k/yr think what 40k less in taxes in addition to what you mentioned about can do for your financial picture.
State Income Tax Arbitrage! No doubt. Did you know that Sioux Falls, South Dakota has no state income tax?
I have lived in zero, medium, and high-income tax states. The difference is striking. Making matters worse, at $400,000, a physician is very likely paying the AMT rather than the normal tax code, in which case state income tax paid is not deductible on your federal tax return. I know from experience, if you know what I mean.
Cheers!
-PoF
There is really no place to hide in the tax code for someone earning a high W2 income. Deferral and frugality are really the most efficient. This is kind of a cool article ranking states based on low, medium and high-income from a tax perspective.
https://wallethub.com/edu/best-states-to-be-rich-poor-from-a-tax-perspective/11257/
Thanks for sharing, Happy Philospher. The maps and tables highlight the fact that your income dictates whether or not you live in a high-tax state. I live in one of the worst for high-income folks, but in early retirement with a low to middle income, the same state is middle of the pack.
There are other considerations, too, such as property tax rate, sales tax, etc… Where I live, income tax is quite high, but there’s no sales tax on clothing, and property taxes are relatively low.
Best,
-PoF
It’s very nice. I live in Sioux Falls and if I were to move 20 miles west into Minnesota, I’d be paying about $15,000 more just in income tax.
Just don’t veer south even a little or you’ll end up in Iowa. 🙂
I made a move from SD to MN. The tax hit is tough, but for us it was the right move. After taxes, I still make a great living, and we’re closer to friends and family.
Cheers!
-PoF
Wow, I had no idea physicians made more in the fly-over states. Fascinating. For most folks, I don’t actually think that’s the case.
But if we all end up working remotely on the internet some day….small cheap towns will be the way to go.
We’re planning to sell our house and move to a smaller town in a cheaper area…soonish. There’s really just no need to live in the big city once you reach financial independence.
Interesting, isn’t it, Mr. Tako? It’s fairly unique to medicine, I believe, and a situation that I am happy to benefit from.
I’ll be interested to read about your upcoming decision-making process, and ultimately the move. So many factors to consider. I’ve only moved for my job or education. Having the ability to live anywhere makes the world your oyster. With young kids, I imagine proximity to family will be a big factor.
Best,
-PoF
As an engineer, my options are somewhat limited to big cities only. Having said that, if a job allows for remote work then that makes living in a small town very possible.
The best paying jobs may be limited to big cities, but I’ve known engineers in every small town I’ve lived in. I supposed it depends on the type of engineering, though.
We are talking about the guys and gals who steer the trains, right?
😉
-PoF
There are other pros and cons of living and working in a small town. I’ve worked in an ED where I was the only doctor in the county overnight. It’s nice to feel helpful, but stressful to not have any backup and to have specialty care over an hour away by helicopter, which can only fly in good weather.
The primary care docs in these places have my utmost respect. Many work for decades and defer vacations because they don’t want to leave their patients without access to care.
Yes Julie, that sounds stressful. I’ve been the only anesthesiologist in the county, but never the only physician!
The best of both worlds might be found in the bigger cities in the smaller red states (based on maps above, not politics). I would never want to be in a position where I was constantly on call or unable to leave town for fear of leaving my patients in the lurch.
Cheers!
-PoF
Never made sense to me. When I first started, I worked in a top 50 population city but it was down near the bottom of that list. I met up with some of my former medical school classmates for a wedding about 10 years after graduation in the large city from where we all graduated. Most still lived and worked there. They were joking about about my “small town” living. I started asking them to compare their week to mine. Most could not practice full time in the super subspecialities they had chosen because of overcrowding. Few had their own practice. Most practiced in many different offices, usually ones in which they just leased space from another doctor when they were not there and their daily commutes were an hour long each way. I then explained that I practiced my exact subspecialty full time, drove 15 minutes to one office, had already brought in another partner because I was too busy and generally took 6-8 weeks off a year. I told them I could visit their big city any time I wanted and had much more disposal income than they did. The conversation pretty much ended there.
How great do you feel after conversations like that?
I didn’t create this post to sing the praises of small-to-medium sized town living, but to me, the advantages are many. And for what it’s worth, Sioux Falls, SD, with 170,000 residents and a quarter million in the “metro area” isn’t exactly tiny. It may not be as exciting as NYC, but most of us aren’t looking for excitement every day.
Best,
-PoF
p.s. I don’t live in Sioux Falls or New York City, but I’ve visited each a couple times and took the pictures you see above.
Interesting post. For the FIRE-inclined physician this is great news. Less pressure to keep up with the Joneses.
That’s true arbitrage. Let’s go long Sioux Falls, short NYC, and lever this up by, …. oh wait that doesn’t work that way.
But seriously, even in finance there is now a shift of opening offices for highly paid staff in “exotic” locations away from the usual places. Unfortunately, a little too late for me personally, haha.
Good point, Big ERN. As more work can be done exclusively from home, the ability to take advantage of geographic arbitrage will expand to include more professions. I have a feeling the big money jobs, the Vice Presidents and Chief positions will continue to require at least a part time in-person presence in most corporations.
Telemedicine has gone mainstream. Tele-anesthesia isn’t remotely possible yet, though.
Best,
-PoF
When I was looking for a job, the income discrepancy between the Midwest and the coasts ranged in the $40k to $150k range! The tough part is that if you’ve lived on the coasts your entire life and your family also lives nearby, it is not easy to pack up and move to Montana to strike gold. The spouse also has to be on board as well.
Most of my colleagues are so specialized that they can’t go to higher paying areas because they are stuck at major academic centers. It’s a trade-off between intellectual stimulation and a cost of living savings.
Incredible, isn’t it? As your experience suggests, the discrepancy reported by the Doximity maps minimizes the difference, which can be more substantial than $50,000. Also, being unspecial has some perks. A pediatrician can work anywhere, but a pediatric spine surgeon won’t have nearly as many options.
Our sons’ pediatrician left for Montana. His wife was on board.
Best,
-PoF
From San Diego and lived in cities like Boston, New Orleans, Portland, OR. I have loved the mountain lifestyle of western Montana for 9 years now on 61 acres of view property, we ski, sled and hike from our front doorstep, have 50 mule deer at a time, 100 elk, big horn sheep, the sound of the creek… it is incredibly peaceful and beautiful. Professionally it is also very rewarding because one person can have a huge impact on a small community. I have created new programs, boosted quality of care, been medical director, Chief of Staff and sat on the Board. Physicians not only have better earning potential and lower COL but are also appreciated and generally well treated by administrators the Board and grateful patients. This article certainly rings true for me.
Another great post. I live in the South which has had a lower cost of living traditionally. Many people never even think about living elsewhere.
Knowing this, what’s the “why” behind the difference in salaries. Is it really only a supply and demand issue that causes midwestern salaries to be higher to attract doctors? You’d think that that the smaller Midwest population would need less doctors and that it wouldn’t necessarily be a problem to recruit doctors to live/work in those areas for the same reason some doctors choose to stay in places like SF or NYC (family, friends, familiarity with area, etc). Additionally, if wages for the population are generally lower in midwestern states, do these people pay for higher health costs (as a percentage of their income) than people on the coast or are the higher salaries covered by government programs?
If I were a young doc, I could say maybe living in SF or NYC for a few years when you’re just starting out, but as soon as you decide to have a family I’d be on the first flight to one of these smaller cities!
Yes, mostly supply and demand and it is a major issue for the healthcare system. Hospitals and clinics have a very difficult time attracting physicians to rural locations (not that the Midwest is all rural). Meanwhile, rural hospitals struggle as patients flock to larger cities to have more costly (read profitable for hospitals) procedures done. This leaves many rural hospitals in trouble and results in more challenging access to care for patients. Thanks for the post PoF!
So true, Green Swan. I worked at a small town hospital that went bankrupt. I enjoy small towns, but a small town hospital affiliated with a larger health system / a.k.a. deeper pockets is a safer play than joining an independent hospital with no Plan B.
Best,
-PoF
I recently moved from NYC to Boulder, Colorado — working in software.
Boulder is by no means the cheapest city in the US, but it’s much cheaper than most other tech hubs (CA, Seattle, NYC…). I now make about the same as I did in NYC with drastically lower living costs.
It’s really interesting reading your blog and getting a different perspective. As an aerospace engineer my options were limited to a few parts of the country. And unfortunately for us, the exact opposite is true, the higher the salary the higher the cost of living. Silicon Valley probably pays best for engineers but you can not find a home for less than 1 million. I would have assumed it was the same for most professions. Higher pay and cheaper living is certainly a great option to take advantage of!
It doesn’t take a rocket scientist to figure out that higher salary and lower cost of living is a win / win. But it’s nice to hear from one.
Cheers!
-PoF
Not really, because your investment in
a home in the city will have more capital growth than in the country.
That hasn’t exactly been the case this year, has it?
A home is best viewed as a consumption item rather than an investment. By the time you factor in the costs of property taxes, home maintenance and upgrades and the use of leverage, you realize there are much better investments out there.
Best,
-PoF
We have jobs for aerospace engineers in Boulder, Colorado (for example, at Ball), which is vastly less expensive than Silicon Valley.
Ditto for a huge number of AE jobs in Huntsville, AL.