Question: Ric, from a personal finance perspective, how do you see California?
By Ric Edelman
Question: We would like your opinion. My wife and I (ages 47 and 55) are longtime residents of California who are concerned about the present and future of this state — and how it affects our personal bottom line. It has been reported that California is $28 billion in debt, with forecasts of $20 billion+ deficits to continue through at least 2018! Unemployment is over 12%. Taxes are ridiculous — and promise to go even higher!
In addition, living in SoCal is very expensive when compared to other locations. My wife and I are looking to acquire a larger home (4,000 sq ft) as we have outgrown our current one (1,800 sq ft). We want to take advantage of lower interest rates before it is too late. But buying what we desire in California means a $1 million or so price tag. Strictly from a personal finance perspective, we really think it is a no-brainer to get out of here.
As a result we are taking a “fact finding” trip to Dallas to see what that area has to offer. We continue to read how the economic climate in Texas is so strong, taxes so low and housing so affordable, and my wife can transfer there. We may also visit other warm-weather states (Florida?) as well. We have $2.2 million in savings and no children. Our current home would sell for $600k. We have a $242k mortgage.
So, Ric, from a personal finance perspective, how do you see California — and how do you see it regarding our own personal situation? Are we overreacting?
Ric: You don’t mention your monthly income or your monthly expenses. If both are such that you can afford to live comfortably in California, even if taxes double, triple or quadruple, then the threat of rising taxes is not in itself a reason to leave the state.
Choosing a place to live is about much more than merely the cost of taxes. Southern California and Dallas are incredibly different types of places! If you have not spent a substantial amount of time in Dallas, and if the threat of paying higher taxes bothers you so much that you are determined to leave the state, then, wherever you go, rent at least for the first full year. It’s much easier to buy a residence than it is to sell one, so flexibility is key until you become certain about your new location. And by location, I mean not just the city, but the neighborhood and even the street. Until you experience all four seasons, you can’t be sure you’ll love the location.
Also, the cost of relocating could be so high that it dwarfs whatever new taxes are coming. So, I would not be willing to say that you should make a decision solely because of the state’s current fiscal status. It’s a factor, but I’m not even sure it’s a major factor.
However, I will say this: Since you do seem to ascribe so much importance to that factor, then it seems that leaving the state is not a bad idea in your case. Therefore, focus on where you want to live, and work closely with your financial advisor to make sure you can afford your new lifestyle.
I’ll be interested in what you decide!