American Dream

How Moving to a New State Accelerates the Road to Financial Independence

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Since graduating from Patrick Henry College in Virginia in 2005, Stephanie Terek’s career has steadily advanced, primarily through jobs in Washington, D.C., including at the White House. However, Texas stole her heart in January 2015, and she considered moving to a new state. While better barbecue, fewer lawyers, and a lively country music scene are all benefits of the Lone Star State, one big factor influenced Stephanie’s decision: Texas imposes no income tax.

Opportunity vs. Affordability

This isn’t the first time Stephanie experienced the cash infusion realized from being permitted to keep more of her income. In 2009, she relocated to her childhood city of Pensacola, Florida—another state with no income tax. “When living in Florida, I was in a good situation, paying off school loans and building up savings,” Stephanie says. She was even able to buy a house within miles of the Gulf of Mexico while in her mid-20s!

However, big-city East Coast opportunity beckoned once again, and Stephanie returned to Washington for a job that gave her a hefty $15,000 pay increase and more responsibility. When her first paycheck arrived, however, it wasn’t what she expected. “I was shocked to find my actual take-home pay didn’t reflect much of that sizable raise at all,” Stephanie says. That chunk of state income tax combined with a much higher cost of living worried her. “It created a serious impact on my personal finances,” she says.

Despite these challenges, Stephanie chose to honor her commitment to the company and enjoyed gaining new management skills. But after a year, she became increasingly concerned over not seeing her savings grow adequately. “I’d already chosen to forgo [dance] lessons and curtail driving to some events,” says Stephanie, who’s an avid swing dancer. She eliminated other small luxuries as well, but despite this self-imposed frugality, she was still depleting her savings. “At the end of last year, I made the decision to get a roommate to decrease my cost of living,” she says. “It was a difficult decision after living in my own home in Florida for much less.”

Texas: Lower Salary but Greater Savings

It’s no surprise that when presented with an unexpected job offer at a promising firm in Texas, Stephanie accepted. Although her salary decreased slightly, something interesting happened: “My take-home paycheck increased due to the absence of a state income tax,” she says. “In addition, my personal cost of living dropped by more than $1,000 per month in Austin.”

In just a short time since moving to a new state, Stephanie has improved her finances thanks to the extra take-home pay and lower cost of living. “Even with a lower salary, I’m able to progress toward my financial goals,” she says. “I’m already paying off debt incurred while working in D.C., and I’ve repaired my emergency savings in just the three months since relocating.” The steady cash flow also allows for voice and dance lessons—and travel. “I’m able to afford travel again!” Stephanie says. “Over the next six months, I’m planning trips to California and to Florida, and even a vacation to visit my sister in Darwin, Australia.”

These Texas-sized tax savings and low cost of living contribute to the state’s first-place economic performance ranking by Rich States, Poor States. From 2000 to 2013, an unmatched 1.2 million people flocked to Texas from other states, and jobs growth swelled by more than 20 percent during those years.

With this in mind, Stephanie’s advice to young professionals is worth considering: “Go ahead and try to get good initial career experience in high-tax states—but once you get that experience, consider moving to a low-tax place where you can build a secure financial future.”

If her story is any indication, a lack of state income taxes can make a huge difference in achieving that goal.