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The 12 big cities where families are best set up to grow wealth

"California, while quite expensive, is the fifth largest economy in the world."

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It's no secret that raising children is expensive: On average, a couple earning between $59,200 and $107,400 a year will spend a total of $233,610 to raise a child from birth through age 17, according to a Department of Agriculture analysis.

The estimate jumps significantly for more urban areas, where incomes and costs of living are usually higher: Couples earning more than $107,400 will spend, on average, more than $372,000 to raise each child to age 17, according to USDA's calculations.

But despite their higher costs, some cities are financially friendlier to families than others, according to a recent analysis from Surety First Insurance Services. Higher monthly incomes more than offset the higher costs of living and child rearing in these places, and couples with children are left with a fair bit of disposable income that can help them build wealth, save for college, and achieve their financial goals.

12 cities where couples' paychecks get their families furthest

Of the 50 largest cities in the country, 12 boast median monthly incomes for families — couples with two children under age 18, in this case — that exceed the typical costs of living by $500 or more.

The methodology itself is pretty straightforward: Author Jeremy Schaedler, Surety's founder, used Census Bureau data for the median income in the 50 largest U.S. cities and then subtracted from each the typical costs of living, as calculated by the Economic Policy Institute.

The median monthly income is $11,755 for a couple with two children in Washington, D.C., for example, and their typical monthly expenses run $8,795. According to Schaedler's method, that leaves a surplus of $2,960 — more than 25% the median income.

California is 'quite expensive' but offers great opportunity

One surprise that emerged from Schaedler's analysis is that of the top 12 big cities where families have the most income left over each month, four of them are in California, where the cost of living is notoriously high statewide.

It's even more surprising since the idea for his analysis came as Schaedler — who is himself a native Californian — watched people leave the Bay Area during the pandemic. His observation wasn't anecdotal either: 2020 was the first year in a quarter century that more people left California than moved into the state.

For those outsiders who are still relocating to the Golden State despite the 2020 trend, there will likely be some sticker shock awaiting them when they arrive, Schaedler says. However, while they might be seeing red at first, they shouldn't let higher costs of living in California prevent them from seeing the financial opportunities the state offers.

Transplants "may primarily be looking at the expense side of the equation of living in California, without fully appreciating their prospects for earning a higher cost adjusted income," Schaedler says. But when you factor higher earnings into the equation, "traditionally high cost of living areas [are] among the most affordable."

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Schaedler's analysis has limits: It relies on data collected before the coronavirus pandemic, and there's evidence that both income and expenses, especially rent, have changed over the past year. It also uses median figures to express broader trends. There are many people in expensive cities who fall on the lower ends of the income spectrum and who struggle to make ends meet.

However, the analysis does complicate the idea that big cities are unaffordable and living in one will prevent you from saving money or building wealth. Even after paying expenses, the top 50% of earners in ultra-high-cost cities will still be left with a fair amount of money they can play with and save for the future, Schaedler's calculations show.

That saving effect was amplified as rents in big cities fell during the pandemic. "We're really surprised to see a city like San Jose, which basically gets a rap for being a really unaffordable area," Schaedler says. "It turns out it's one of the most affordable in the country."

A city like San Jose, which basically gets a rap for being a really unaffordable area ... It turns out it's one of the most affordable in the country.
Jeremy Schaedler
Founder, Surety First Insurance Services

San Jose ranks third on the list of cities where single people are left with the most discretionary income. The Economic Policy Institute's estimate for monthly expenses in San Jose is almost $11,000, making it one of the highest-cost places in the country, second only to San Francisco. But the median monthly income for a family in San Jose is $12,600, which means half of the city's families likely earn more than they spend on necessary expenses including housing, child care, and transportation.

That's in contrast to a lower cost city like Pittsburgh, where expenses for families are about $6,500 a month — almost 40% lower than they are in San Jose — but the median monthly income for a family is just shy of $5,500.

"You would assume [Pittsburgh] is quite affordable," Schaedler says, but "it actually ends up being quite expensive relative to income and expenses." It even leaves the median earner underwater.

"California, while quite expensive, is the fifth largest economy in the world," Schaedler adds. With that status "comes robust economic opportunities to earn higher incomes."

When you have kids, your 'overhead goes up exponentially'

No matter where you are, if you have children and you have disposable income, you're going to spend a lot of it on them. Upper-income parents spend 60% more raising their children than middle-income parents, according to USDA, in part because there are more enrichment activities open to them and thus more opportunities to spend on them.

"The thing that parents forget is how much out of pocket" it is to pay for activities, says Janet Stanzak, a certified financial planner and founder of Financial Empowerment in Minnesota. "Virtually any kind of activity that children are in today has costs."

From Little League to piano lessons to summer camp, Stanzak says that parents sometimes don't realize how quickly expenses will add up. And even when children are not involved in a lot of activities, child care is still likely to take a hefty chunk from a family's budget.

"Parents don't think about it until they're faced with it," Stanzak says. "When they start to have children, all of a sudden their overhead goes up exponentially."

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It's wise for parents of younger children to use any extra money on the basic building blocks of good financial planning, including saving for college and amassing a hefty emergency fund that can cover six months' worth of basic living expenses including rent, groceries, and utilities, experts say.

One financial building block that parents should not overlook (but sometimes do) is life insurance, Stanzak says. No one likes to think about tragic events that may occur in their future, but parents should take the threat of terminal illness or catastrophic accidents seriously, she adds.

"All of a sudden you have one parent to support the family. What about the mortgage? The college funding? Living everyday life?" she explains. "All of a sudden you're in a whole different cost structure, so life insurance really matters."

The same can be said for estate planning documents should something happen to both parents. "Those documents that say who the guardians are going to be and who gets the children if something happens to the parents are especially critical," Stanzak adds.

Once a plan is made to take care of children and a surviving spouse in the case of an emergency, Stanzak stresses that planning for retirement through saving and investing is essential. "If there's no saving and investing element in your living, then you're not really living within your means," she says. "Because you're not providing for the years ahead and for things that come up."

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