Get ahead in a starter city

By Kiplinger's Personal Finance Magazine

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.

The cost of living

If you're struggling financially, your location may be the culprit. Start your independent life in such metropolitan hot spots 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.

Begin life's journey off the beaten path, however, and you could live more comfortably and get your finances on track much more easily. 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.)

• MSN Real Estate: Housing markets you can afford

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.

It didn't take long for Jeremy and me to learn firsthand 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 have cost $170,000. And even if we won the lottery and could 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.

• MSN Money: Home prices by city

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 $47,900 a year, according to the experts at Salary.com. In Austin, Texas, 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 Francisco, and the overall cost of living there is nearly half. So even on $10,000 less, he's able to live much more comfortably.

MORE: HOME PRICES - BEST CITIES - HOME LOANS - FINANCIAL TIPS - COST OF LIVING

Continued: The top cities

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