America's top 10 most affordable places to live

Note: This article first appeared at NerdWallet.com. Click here to read the original post.

Life is expensive. That’s true just about everywhere, but just how expensive varies widely. In Kodiak, Alaska, a Coca-Cola costs almost $2.50, while the same soda in Oklahoma City, Oklahoma, averages $1.30. This difference illustrates the wide variation in cost for almost everything in the U.S. — from groceries to housing.

To find the top places for affordability, NerdWallet investigated price variations to assess where a dollar stretches the furthest in the U.S.

Not surprisingly, data on median income from the U.S. Census Bureau’s American Community Survey revealed that many of the cheapest places in the U.S. are also where residents earn the least. In our study, we make a distinction between “cheap” and “affordable” by comparing a place’s median income with its cost of living to find truly affordable places.

Key findings

Wealthier places are more affordable. Despite a higher cost of living, the gains from a higher median income in wealthier places are more than the increased cost of living there.

Cost of living is clustered. Sure, there are outliers like New York City, New York, and Honolulu, Hawaii, where the cost of living is 122 percent and 74 percent above the U.S. average respectively, but the cost of living in most places is within a small range around the national average.

Within a place, costs can be diverse. Just because a place is affordable in one category, such as groceries, doesn’t mean the same is true for housing or utilities. In Chapel Hill, North Carolina, the cost of utilities is 11 percent below the U.S. average, but groceries and housing are above the national average.

Relationship between income and cost of living

Our data show that higher-income areas tend to be more expensive, but how much more expensive? For example, in San Francisco, California, the median household income is $74,559, an impressive 43 percent higher than the national median of $52,176. But the cost of living for San Francisco residents is almost 67 percent higher than average, much more than the area’s income advantage.

Our study found similar trends for other well-to-do places such as Washington, D.C., and Seattle, Washington, where higher incomes are paired with a higher cost of living.

However, there are places where higher incomes aren’t offset by a more expensive cost of living. In this way, for example, a place such as Scottsdale, Arizona, might be more affordable than Tucson, Arizona.

In Scottsdale, the cost of living is 14 percent higher than the U.S. average, while in Tucson it is 3 percent below the average. However, the median income in Tucson is 31 percent below the national median while Scottsdale’s is 34 percent above. In this case, the data reveal why people in Scottsdale are doing better than Tucson residents.

As it turns out, the relationship between the cost of living index and the income index in the places we analyzed isn’t one to one, which means in many cities where the income index is higher, the cost of living index isn’t as high. This allows some wealthier places in our study an advantage when it comes to affordability because the cost of living remains relatively lower.

Data highlights

We calculated the percentage difference in the cost of items based on data from over 300 U.S. metropolitan areas.

A T-bone steak, at an average of $8.48 in Olympia, Washington, for a 12-ounce to 24-ounce cut, is cheaper than it would be in 99.7 percent of the places surveyed, according to our data.

In Juneau, Alaska, a pound of bananas costs $0.88 on average, which is more expensive than in 98.5 percent of other places.

A six-pack of Heineken in Omaha, Nebraska, is $7.43 — cheaper than it would be in 99.3 percent of places.

People in 88 percent of the places in our study will pay more for a phone line than those in Chapel Hill, North Carolina, where the average landline is $22.91 a month.

A haircut in a Scottsdale, Arizona, salon costs $54.88, more expensive than 97 percent of the other places.

In Tracy, California, it costs $8.89 to dry-clean a men’s two-piece suit — a cheaper price than in 93.5 percent of the other places.

A bottle of white wine in Round Rock, Texas, costs about $5.16, which is less than 98.7 percent of the other places in our survey.

Methodology

To assess a place’s cost, we used the Council for Community and Economic Research’s 2014 cost of living index.

We compared this index with an index we created for income using the median household income from the U.S. Census Bureau’s American Community Survey.

Places with the biggest difference between the income index and the cost of living index were ranked favorably as the most affordable places.

10. Tracy, California

Median household income: $73,559

Income index: 141

Cost of living index: 124

Grocery index: 120

Housing index: 159

Utilities index: 107

Transportation index: 113

Health care index: 105

Goods and services index: 106

9. Anchorage, Alaska

Median household income: $76,159

Income index: 146

Cost of living index: 128

Grocery index: 123

Housing index: 157

Utilities index: 97

Transportation index: 105

Health care index: 140

Goods and services index: 122

8. Rio Rancho, New Mexico

Median household income: $58,281

Income index: 112

Cost of living index: 92

Grocery index: 95

Housing index: 77

Utilities index: 89

Transportation index: 101

Health care index: 97

Goods and services index: 101

7. Scottsdale, Arizona

Median household income: $70,078

Income index: 134

Cost of living index: 114

Grocery index: 104

Housing index: 143

Utilities index: 92

Transportation index: 102

Health care index: 102

Goods and services index: 105