How to Survive California's High Costs and Avoid Debt

California is a state of great beauty and rapid tech growth. But what everybody also knows about California (and there are no two opinions on this) is that it is so expensive. The costs of living, particularly housing but also nearly everything else, are much higher and people find it very hard to make a decent income.

However, with some useful advice and a bit of financial strategy, it is possible to live an extremely high-quality lifestyle in California without going into debt. This post will highlight a few ways you can cope with the high cost of living in California and is broken down into three big buckets: housing, budgeting and securing your financial future over the long term.

Cost of living in California

The table below outlines the key costs associated with living in California as of September 2024, providing a clear snapshot of the state's current living expenses.

Data Courtesy: (ConsumerAffair, RentCafe)

Main Categories of Spending for Cost Living in California

• Housing: 97% higher than the national average.
• Transportation Costs: 30% higher than the national average.
• Food Costs: 15% higher than the national average​.
• Healthcare Costs: 8% higher than the national average.
• Utilities: 24% higher than the national average​.

Data Courtesy: (RentCafe)

Financial Costs to Residents of High Costs

According to the California Department of Finance, nearly 800,000 people fled the state between 2020 and 2023, mostly due to high living costs. While more than 800,000 additional housing units have been added in California since 2015, there are still some very real housing shortages throughout the state that would require more than 3.5 million homes to meet the current demand from its existing population​.

Why is living in California so expensive?

Compared to other states, California is way more expensive in terms of some of the major costs like housing, transportation, and food. This has highly been attributed to exorbitant house prices, high taxes and utility bills easily over $300 a month. Factors that contribute to these costs have been attributed to a lack of affordable housing, which continues to be among the leading causes of poverty in the state.

As stated by the California Budget & Policy Center, the cost of housing remains one of the most critical elements driving financial insecurity and poverty in California. While the state is facing the highest living costs in the nation, the indebtedness levels within California are very high as well. According to the Federal Reserve Bank of New York, "the United States owes $17.3 trillion on mortgages, loans, and credit cards.". Californians account for an estimated $2.5 to $3 trillion of that, much of it tied to the state's high housing costs​.

Tips to Manage Housing Costs

The key to keeping housing costs manageable in California involves a proactive approach and some sacrifice.

Here are some strategies that can help.

Reduce Rent Payments

Move to an apartment that is smaller or relocate to an area that is less pricey: style would not be that comfortable; however, it will save a lot. Another plus is the fact that with a roommate, your living space is shared and your monthly expenses, such as rent and utilities, are divided.

Refinance Your Mortgage

Refinancing your mortgage can save you money over the long run if you're able to lock in a lower interest rate. It doesn't matter whether that's because you have built up equity in your home or if the interest rates dropped since you took out your mortgage. Government-backed loans, which include such entities as Fannie Mae and Freddie Mac, offer more favorable terms: lower down payments and interest rates.

Negotiate Rent

You can, of course, negotiate lower rent or other concessions if you get along well with the landlord and have been making your rent payments on time. You can negotiate a reduction in rent due to the fact that you pay in advance or care for the minor maintenance yourself. Besides that, another option could be rent-controlled apartments available in cities like San Francisco; these give more leeway in the long term concerning affordability.

Debt Management Strategies

Debt management is crucial in a high-cost state like California. Here's how you can stay on top of your finances:

1. Assess your finances: Analyze income versus expenses in great detail to determine your financial position. This would include tracking all of your sources of income and categorizing your expenses to identify areas where you can cut back. Develop a reasonable budget that meets essential expenses, such as housing, utilities and food and allots money for debt reduction and savings.
2. Cut Unnecessary Expenses: Stop paying for monthly expenses that are not necessary, such as streaming services, premium phone plans, or eating out. Use this money in other ways: pay off your debt quicker or build up your emergency fund. Consider using public transportation or carpooling to save on transportation costs, which can be significant in California.
3. Emergency Fund: Build up an emergency fund to help offset unexpected bills, whether medical or repair of your car, among other surprise expenditures. This way, when such a situation arises, you will not have to slide into debt. You should have enough money in the emergency fund to pay living expenses for at least 3 to 6 months. In this case, it becomes a financial cushion against losing your job or other unforeseen situations.
4. Consider a Side Hustle: With the gig economy thriving in California, everything from driving around with a ride-sharing service to delivering food and freelancing provides an extra income stream that one could use to either pay off quicker or add to one's savings. Anything online, offering your services, tutoring or even renting out a room on Airbnb could do the trick. The gig economy will provide you with ample opportunities to increase your income.

How California Residents Can Avoid Debt

The following are additional tips to help you stay financially fit: Staying out of debt takes diligence and creativity in California's high-cost environment.

Credit Counseling

Get credit counseling to assist you in handling debt. They can give you a debt management plan, budgeting, and money education to help you regain control of your finances.

Side Hustles

There are many different gig economy-type job options in California. Think about trying a side hustle freelance, such as driving for Uber/Lyft/DoorDash, so you can make more money and pay down your debt faster.

Living Expenses Management

Find ways to live below your means without sacrificing quality of life. Stay in and cook at home, take public transportation and enjoy free or low-cost activities.

Low-Income Housing Options

Look into California rent subsidy programs and below-market housing. Examples include Section 8 or low-income tax credit homes.

Financial Literacy

Personal finance encompasses investing, budgeting and debt management. The better you know this stuff, the wiser your money is spent.

Conclusion

Living in California is undeniably expensive but Prudent financial planning, sound budgeting and well-managed housing costs are key in California. If you do a few of the things outlined within this article, it might be possible to escape debt and live far more comfortably in one of the pricier states. Between renting, saving for a house or just paying the bills, it is expensive and if your cash flow is not under control, you are not going to make it in California. By following the mentioned tips and continuously educating yourself on personal finance, you will be able to maneuver through the high living costs in the Golden State and build a stable financial future.