Impacting Your Medical Career: Understanding HCOL, VHCOL, MCOL and LCOL Areas

You may have heard of HCOL, VHCOL, MCOL, and LCOL before. Perhaps you’ve seen it in some reports, statistics, browsing a Reddit forum, or reading an interesting blog post. What exactly is it? These indicators are acronyms that describe the cost of living, from low (LCOL) to very high (VHCOL). Different states, regions, and cities can be categorized based on how far you can stretch your dollar.

But what does this mean for physicians like you?

Today, we’ll answer this question and provide a comprehensive guide on each acronym, its impact on your, key differences, and elements that influence the specific category. With the healthcare industry being the highest-paid field in the country, the choice of where to live is one of the most important and deciding factors in your life – both professionally and personally.

Physicians Thrive is here to help you make informed decisions about your finances and how to make the most out of your career.

Why Is This Important?

Before we dive into the acronyms, it is crucial to understand precisely why you should care in the first place. These acronyms are synonymous with comparisons made by formal reports and lifestyle indicators throughout your family, peers, community, and government.

The cost of living doesn’t just affect how far you can stretch your earnings but how to allocate resources. For example, if everyone within your region is a high earner, the surrounding industry will reflect that. Finding affordable options where more luxurious products can take their place will be more challenging – creating even more competition for higher pay or a more comfortable lifestyle.

Lifestyle creep is also very dependent on your categorization. The higher the cost of living in an area, the more you are not just enticed – but motivated – to spend your discretionary income on non-mandatory items.

As you go through each cost of living categorization, use this lens to filter out and understand precisely what you’re looking for. Strike a balance between potential earnings, lifestyle, and the cost of living to formulate a strong plan of action and a goal that is conducive to the success of you and your loved ones.

Read our book review: Tax Free Wealth: How to Build Massive Wealth by Permanently Lowering your Taxes by Tom Wheelwright

The Acronyms: Explained

Now that you better understand how to interpret this article, let’s dive into each category and briefly explain each. Further below, we’ll dive into the nitty gritty of why each categorization is marked as such.

LCOL (Low Cost of Living)

Low cost of living, or LCOL, is the “lowest” category on this scale. Remember that higher or lower isn’t necessarily an indication of each society’s ethics, safety, and conduct. Cost of living refers to the sum of money or income needed to cover basic expenses.

A lower cost of living means that, compared to the average American, an LCOL city, region, or area, means that this place is highly affordable and has lower living expenses. The area may have cheaper housing, taxes, grocery costs, healthcare, and education.

MCOL (Medium Cost of Living)

A medium cost of living (MCOL) area means that it strikes a balance between affordability and living expenses. While it is referred to as “medium,” let us remember that this doesn’t necessarily mean “average.” An MCOL area, compared to the national average, would offer a reasonable option for those looking for a comfortable lifestyle without wanting to wake up to a steep price tag every day.

HCOL (High Cost of Living)

Contrary to popular belief, the highest indicator on this categorization list is the high cost of living (HCOL). The scale means that, compared to the national average, these cities and regions have a high cost of living associated with lifestyle expenses.

These are typically large urban cities with higher housing costs, rent, and utilities. Still, you may also have better access to services and amenities to justify the increased income needed to sustain yourself in these areas.

VHCOL (Very High Cost of Living)

Reaching the end, a very high cost of living (VHCOL) is considered a “bonus” area that takes living costs to the next level, usually due to foreign investment, volume, lifestyle creep, celebrity status, etc. VHCOL areas typically are not entire regions themselves but areas and subsections of certain places. Examples of VHCOL include the Manhattan area of NYC and the downtown area of San Francisco.

The exorbitant costs and other expenses will have even the highest earners feeling like they are living on minimum wage if they do not budget accordingly or engage in a more competitive lifestyle than their neighbors.

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What are the Factors Influencing Cost of Living Categorizations?

Although categorizations are not set in stone, and there is no official list of categorizations, specific indicators can help you pinpoint at which level your city, town, and area may sit. The Consumer Price Index is one such indicator, as it determines the average change over time in the prices paid by consumers (urban) for a “basket” of services and goods compared to historical data.

Here are the most important characteristics to remember when understanding a categorization:

Housing Costs

This is included first on the list as it is often the first thing that comes to mind. After all, when moving to a new area, the first thing you will tend to look at are house prices. HCOL and VHCOL areas generally have high housing costs for leasing and outright buying. This often does not mean you are getting a larger home, as the price per square foot is generally higher in these areas.

Housing costs are much higher than usual in these areas due to demand and supply shortages. If the prices were to decrease, aspiring buyers would scoop it up faster than normal to live in an area considered “high-status.”

You can generally get more bang for your buck in a lower-cost-of-living area. If you are making an above-average income, you can afford a cheaper house or a house of a similar size but for much less. The downside will be that you may be living in an area that does not have access to all the services and goods you may require for your career, family, or lifestyle.

Transportation Costs

Owning a vehicle is a significant determining factor in the category you will be living in. Electricity for your electric vehicle or gas for your combustion engine will not differ too significantly from city to city, but public transportation might.

For example, living in Manhattan (VHCOL) may be extremely expensive, but living in that city and accessing everything you need on foot or the subway is possible. A higher cost of living may affect not only costs but access. A rural LCOL area may be cheaper, but there will not have many public transportation options, and you may need to commute further for work and groceries.

Utilities and Property Taxes

The cost of utilities and property taxes are enormous determinants and contributing factors to a categorization. A rural LCOL area, for example, may have lower overall property taxes and other costs, but you may not have public access to water and electricity. In this case, you will need to procure this privately – which could be cheaper or more expensive depending on your situation.

However, this does not mean a HCOL area will have cheaper utilities. The costs will be more spread out, but providing the infrastructure necessary for all utilities to larger buildings is a significant endeavor.

Healthcare Costs

Quality healthcare, access to healthcare, and costs increase the cost of living in the area. This will impact you significantly as a physician – not just as a consumer but as a practitioner. Rural areas may have a higher demand for your services, but competition will be fierce. However, the income will not just be based on your base salary, as other incentives can subsidize your move (bonus, benefits, stock options, partnership, etc.)

Physicians like you should consider real estate investing to diversify your income and hedge your exposure and risk for the future.

Consumer Services and Goods

The strength of your dollar doesn’t just help you survive but enables you to live overall. After deciding your living situation, securing a place of work, and figuring out transportation routes, you will need to live and enjoy the area you have agreed to settle in.

The consumer services and goods indicator is crucial, as it decides your ability to afford entertainment, groceries, clothes, and other goods and services vital to your life’s survival and enjoyment whether you’re in a VHCOL, HCOL, MCOL or LCOL area.

Read this: How Moving Can Help Physicians Pay Off Student Loans

Key Differences

The differences for a VHCOL area may be evident, but each categorization has some stark differences that make them stand out. While we won’t cover every scenario, here are the top two most important differences to consider:

HCOL vs LCOL

Housing Costs: Housing costs are significantly higher compared to LCOL areas. This means purchasing or renting a home in HCOL cities may require more of your income. In contrast, LCOL cities offer more affordable housing options, allowing you to allocate a smaller portion of your income to housing expenses.

Everyday Expenses: Living in HCOL areas often increases daily expenses, such as groceries, transportation, and utilities. These costs can add up and impact the overall cost of living. LCOL areas generally have lower everyday expenses, leading to a more budget-friendly lifestyle.

Quality of Life: While HCOL areas may provide access to numerous amenities, cultural events, and entertainment options, they can also be more crowded and fast-paced. LCOL areas, on the other hand, may offer a quieter and slower-paced lifestyle with a stronger sense of community. It is up to your to choose what you desire from your quality of life.

HCOL vs MCOL

Housing Affordability: HCOL areas have higher housing costs compared to MCOL areas.

While MCOL areas may still have relatively expensive housing, they are generally more affordable than HCOL cities, making homeownership and renting more feasible and allowing you to get more square footage out of your home.

Cultural and Recreational Opportunities: While HCOL and LCOL areas have apparent differences, they may be nuanced between HCOL and MCOL.

HCOL areas often provide various cultural attractions, restaurants, and recreational activities. MCOL areas also offer cultural experiences and recreational opportunities, although they may have fewer options than HCOL cities.

Traffic and Commute Times: HCOL areas are often characterized by heavy traffic and longer commute times.

In MCOL areas, commuting may be more manageable, leading to less stress and more free time for residents. Of course, highly crowded areas may also allow you to reach everything by foot if you want to optimize your commute.

Top 5 Cities in Each Cost of Living Area

If you want to make a change, here are the top five cities in each category. Remember that the percentage does not just determine the cost of living, as this only reflects the cost of living day to day. Cities are primarily more expensive due to high rent and house costs, and CPI does not reflect all economic production or consumption.

These numbers can change anytime, but use this list to determine where you’d like to live.

Very High Cost of Living (VHCOL) Cities

1. San Jose, CA: Silicon Valley, innovation-driven economy, and pleasant California weather. Average House Price: $1.3 million COL % above US average: Approximately 118%
2. San Diego, CA: Beaches, outdoor activities, and thriving biotech industry. Average House Price: $800,000 COL % above US average: Approximately 64%
3. Los Angeles, CA: Entertainment capital, diverse neighborhoods, and cultural landmarks. Average House Price: $880,000 COL % above US average: Approximately 77%
4. Miami, FL: Beach lifestyle, Latin influence, and vibrant nightlife on the Florida coast. Average House Price: $390,000 COL % above US average: Approximately 21%
5. Seattle, WA: Coffee culture, tech companies, and stunning waterfront views. Average House Price: $750,000 COL % above US average: Approximately 57%

High Cost of Living (HCOL) Cities

1. New York City, NY: Iconic skyline, diverse culture, and abundant job opportunities in the Big Apple. Average House Price: $1.4 million COL % above US average: Approximately 125%
2. San Francisco, CA: Tech hub, picturesque landscapes, and vibrant arts scene. Average House Price: $1.3 million COL % above US average: Approximately 118%
3. Honolulu, HI: Stunning beaches, tropical climate, and rich history. Average House Price: $910,000 COL % above US average: Approximately 82%
4. Washington, D.C.: Political hub, historic landmarks, and diverse dining options. Average House Price: $750,000 COL % above US average: Approximately 57%
5. Boston, MA: Renowned universities, cultural attractions, and historic charm. Average House Price: $700,000 COL % above US average: Approximately 50%

Medium Cost of Living (MCOL) Cities

1. Dallas, TX: Business-friendly environment, affordable housing, and cultural attractions. Average House Price: $370,000 COL % above US average: Approximately 2%
2. Atlanta, GA: Georgia Southern charm, diverse cuisine, and growing job market. Average House Price: $360,000 COL % above US average: Approximately 1%
3. Phoenix, AZ: Desert landscapes, outdoor recreation, and affordable living. Average House Price: $320,000 COL % above US average: Approximately 7%
4. Nashville, TN: Music scene, vibrant nightlife, and friendly community. Average House Price: $350,000 COL % above US average: Approximately 1%
5. Denver, CO: Rocky Mountain views, outdoor activities, and craft beer culture. Average House Price: $550,000 COL % above US average: Approximately 32%

Low Cost of Living (LCOL) Cities

1. Memphis, TN: Historic landmarks, blues music, and affordable housing. Average House Price: $150,000 COL % below US average: Approximately 34%
2. Indianapolis, IN: Sports events, thriving arts scene, and reasonable cost of living. Average House Price: $250,000 COL % below US average: Approximately 16%
3. Oklahoma City, OK: Western heritage, friendly locals, and affordable lifestyle. Average House Price: $200,000 COL % below US average: Approximately 24%
4. Wichita, KS: Aviation history, family-friendly attractions, and low housing costs. Average House Price: $160,000 COL % below US average: Approximately 31%
5. Little Rock, AR: Natural beauty, Southern hospitality, and budget-friendly living. Average House Price: $200,000 COL % below US average: Approximately 24%

Check out our report on the 10 Best States to Practice Medicine

Pros and Cons of Each Categorization

To help you choose whether to move or not, consider the following advantages and disadvantages:

HCOL and VHCOL Areas

High cost of living includes both advantages and disadvantages.

Advantages:

• Access to a vibrant cultural scene and numerous entertainment options.
• Proximity to top-notch educational institutions and research centers.
• Opportunities for high-paying jobs and career advancement.

Disadvantages:

• Higher housing costs and limited space.
• Increased competition for jobs and little job security.
• Significant financial strain is on day-to-day expenses.

MCOL Areas

Medium cost of living (MCOL) brings with it the following advantages and disadvantages.

Advantages:

• A balanced cost of living with reasonably priced housing and goods.
• Less competition for jobs and potentially more excellent job stability.
• Access to a diverse range of amenities and services.

Disadvantages:

• Despite the MCOL designation, some expenses may still be higher than the national average.
• Job opportunities may not be as abundant as in HCOL areas.

LCOL Areas

Settling down in a LCOL area will include the following pros and cons.

Advantages:

• Affordable housing and lower living expenses.
• A sense of community and a slower pace of life.
• Potential for a higher quality of life on a lower budget.
• Niche areas may require your services, which may provide more incentives than abundant job opportunities in HCOL areas

Disadvantages:

• Limited access to certain amenities and services.
• Fewer job opportunities in some specialties.

Read this: Experts Weign in on the Future of Healthcare in the Next 30 Years

Tips For Physicians Living in VHCOL and HCOL Areas

Maintaining a comfortable lifestyle can be difficult on any salary or compensation if you do not plan accordingly. Managing your finances is crucial. Here are some tips if you want to leave in a VHCOL or HCOL area.

Investing: Choosing where to place your money is the most important decision regarding your financial security.

Put away your excess cash when you have it, and consider real estate, stocks, and bonds. Remember that life insurance is a great way to protect your future and can help with income generation and asset building.

Budgeting: Create a comprehensive budget and be meticulous, especially as you enter a new area and part of your career. Include your fixed necessary costs (usually mortgage/rent, utilities, property taxes, car payment, and insurance) and add your grocery and transportation bills.

After this, determine your discretionary income to spend on entertainment and emergencies and use the rest to invest in your future.

Negotiating Compensation: If you think you may not have had a good deal, you can always ask for help and revisit it anytime, especially if you want to change your life.

An expert contract review is your right to understand your current benefits, incentives, and compensation package. You may be richer than you think.

Commuting: Especially in VHCOL areas, purchasing a home in a few cities can make a drastic difference. For example, living in Palmdale and commuting to LA, or living in the suburbs of NJ and commuting to Manhattan.

If your role includes some remote working capacity, this can drastically improve your case for purchasing a home in a more affordable area.

Additional Considerations for Physicians Specifically

Physicians considering different cost of living areas should take the following into account:

1. Big fish, little pond: LCOL Rural areas may offer higher salaries or other incentives to attract physicians due to a higher demand for healthcare services.

2. Stop and smell the flowers: The cost of living should be weighed against the work-life balance and the quality of life offered in a particular region. Often, the VHCOL and HCOL areas have a faster pace as compared to MCOL or LCOL areas.

3. You and your loved ones: Assessing the availability of job opportunities, potential for career growth, and job stability is essential in making an informed decision.

Moving to a new state? Check out our Medical Licensing Library

Thrive in Each Place

Choosing the right cost-of-living area is a huge decision that cannot be made lightly. Physicians Thrive is proud to partner with real estate experts in all 50 states to help you navigate buying a home in the current market.

Moving is significant and can take a toll on your future and family. With this being said, it is an excellent investment in your financial well-being and overall quality of life. Implementing sound financial choices and decisions is essential to your long-term peace of mind and health.

One of your most significant expenses is taxes, which can be well over 50%, with income, property, and sales taxes in some instances. Physicians Thrive offers comprehensive tax planning services and expert financial advice to make any decision great.

Schedule a free consultation today to explore your options nationwide for a more prosperous future.

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