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What is the best state to live in financially?

The five best states for your personal finances in 2022 are (No. 1 being best): ... New Jersey. Hawaii. Connecticut. Alaska. Illinois.

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Best States to Live in for Your Finances in 2022 A Credit Karma Study Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions . Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Advertiser Disclosure Advertiser Disclosure Close We think it’s important for you to understand how we make money. It’s pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials. Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates. Of course, the offers on our platform don’t represent all financial products out there, but our goal is to show you as many great options as we can. Credit Karma studied metrics on taxes, state pension funding rates, property values, income and cost of living to compile a list of the best and worst states to live in for your finances. (Click here for the full methodology.) Cheaper states were clustered in the middle of the country and in the south, while more expensive states tended to be coastal. The five best states for your personal finances in 2022 are (No. 1 being best):

Tennessee Utah Idaho Arkansas South Dakota

And the bottom five states for taxes (No. 1 being worst):

New Jersey Hawaii Connecticut Alaska Illinois

Overall ranking of best states for your finances

In our scoring system for this study, a lower score means the state is better when it comes to finances. This table shows the overall ranking, along with a few other key financial indicators for each state: Rank State Score Top state income tax rate Median household income 2019 Grocery cost of living rank 1 Tennessee 4.33 0.00% $53,320 9 2 Utah 4.45 4.95% $71,621 16 3 Idaho 4.59 6.93% $55,785 6 4 Arkansas 4.91 5.90% $47,597 4 5 South Dakota 5.04 0.00% $58,275 25 6 Ohio 5.07 4.80% $56,602 1 7 Delaware 5.15 6.60% $68,287 45 8 Alabama 5.17 5.00% $50,536 17 9 Nevada 5.24 0.00% $60,365 38 10 Georgia 5.27 5.75% $58,700 15 11 North Dakota 5.31 2.90% $64,894 29 12 Washington 5.33 0.00% $73,775 39 13 Arizona 5.35 8.00% $58,945 26 14 North Carolina 5.36 5.25% $54,602 19 15 Oklahoma 5.37 5.00% $52,919 10 16 Wyoming 5.40 0.00% $64,049 31 17 Florida 5.48 0.00% $55,660 35 18 Montana 5.49 6.90% $54,970 30 19 Colorado 5.55 4.55% $72,331 27 20 West Virginia 5.57 6.50% $46,711 21 21 Virginia 5.58 5.75% $74,222 13 22 Maryland 5.62 5.75% $84,805 42 23 Mississippi 5.65 5.00% $45,081 2 24 Indiana 5.69 3.23% $56,303 5 25 Texas 5.70 0.00% $61,874 3 26 New Mexico 5.71 5.90% $49,754 11 27 Missouri 5.72 5.40% $55,461 12 28 Minnesota 5.73 9.85% $71,306 33 29 Kentucky 5.77 5.00% $50,589 4 30 Michigan 5.83 4.25% $57,144 8 31 Wisconsin 5.84 7.65% $61,747 24 32 Nebraska 5.93 6.84% $61,439 22 33 South Carolina 5.96 7.00% $53,199 32 34 Oregon 5.99 9.90% $62,818 41 35 Kansas 6.05 5.70% $59,597 7 36 Louisiana 6.10 6.00% $49,469 14 37 Iowa 6.14 8.53% $60,523 18 38 Pennsylvania 6.18 3.07% $61,744 36 39 Maine 6.23 7.15% $57,918 28 40 Massachusetts 6.40 5.00% $81,215 46 41 New Hampshire 6.48 0.00% $76,768 23 42 New York 6.72 8.82% $68,486 47 43 Rhode Island 6.73 5.99% $67,167 40 44 California 7.09 13.30% $75,235 43 45 Vermont 7.12 5.75% $61,973 44 46 Illinois 7.24 4.95% $65,886 20 47 Alaska 7.43 0.00% $77,640 48 48 Connecticut 7.61 6.99% $78,444 34 49 Hawaii 7.80 11.00% $81,275 49 50 New Jersey 7.80 10.75% $82,545 37 Note: Two states — Arkansas and Kentucky — tied for fourth for grocery cost of living: Coastal states came in hot as some of the worst states for personal finances. Although residents in those states have higher median incomes, the states often have higher taxes and greater costs for things like groceries, transportation, utilities and medical care. Hawaii and Alaska regularly show up as more expensive states in Credit Karma’s studies, like this report on the cheapest states. This may be because both are geographically isolated, meaning goods must travel farther at greater cost. The Midwest, Plains, Rockies and South tend to be cheaper, with the exception of Illinois. Illinois appears as one of the worst states for finances — mostly because of its high effective property tax rate and the poor financial condition of its publicly funded pensions.

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Take a look at the map below to see what regions could be better for your finances:

States with the lowest cost-of-living indexes

In terms of overall cost of living, these were the states with the lowest and highest costs: Lowest cost-of-living states (1 being lowest) Highest cost-of-living states (50 being highest) 1. Mississippi 50. Hawaii 2. Kansas 49. New York 3. Oklahoma 48. California 4. Alabama 47. Massachusetts 5. Arkansas 46. Oregon Credit Karma used the following cost-of-living indexes in the final calculation for the best states for your finances:

Groceries

Transportation

Utilities

Health

Here are the states with the lowest cost of living in the individual indexes: Rank Groceries Transportation Utilities Health 1 Mississippi Mississippi Idaho Maryland 2 Texas Tennessee Wyoming Kentucky 3 Arkansas Arkansas Louisiana Arkansas 4 Kentucky Virginia Colorado West Virginia 5 Indiana South Dakota Montana Tennessee Note: For the transportation cost of living, Virginia and South Dakota tied for fourth place. Here are the states with the highest cost of living in the individual indexes: Rank Groceries Transportation Utilities Health 50 Hawaii Hawaii Hawaii Alaska 49 Alaska California Alaska Massachusetts 48 New York Oregon Connecticut Washington 47 Massachusetts Washington California Oregon 46 Delaware Nevada Rhode Island New Hampshire Arkansas’ consistently good scores in cost-of-living indexes might explain why it ended up as one of the overall best states for personal finances. Tennessee also makes multiple appearances, which contributes to its overall standing. Hawaii and Alaska have a similar, if opposite, dynamic. Both appear in multiple categories as expensive states, leading both to be among the worst states for personal finances.

States with the lowest average effective property tax rates

The U.S. Census Bureau’s 2019 American Community Survey and the Annual Survey of State and Local Government Finances in 2019 provided the average effective property tax rates for different states. A state’s average effective property tax rate is an estimate of the percentage, on average, of a property’s value that’s paid annually in taxes. Using the government data, we were able to find the average effective property tax rate based on what people in owner-occupied units pay on the state level. Rank State Avg. effective property tax rate 1 Hawaii 0.28% 2 Alabama 0.37% 3 West Virginia 0.48% 4 Louisiana 0.49% 5 Colorado 0.50% Hawaii is the dark horse on this list. Hawaii has some of the most expensive property in the U.S., but it has a low effective property tax rate. New Jersey has the highest average effective property tax at 2.44%, followed by New Hampshire at 2.12%. Illinois and Connecticut share third place at 2.11%. Keep in mind that low property tax rates may not translate into a small tax bill because of property value. For example, homes in Hawaii are notoriously expensive. Hawaii’s median sales price for a home was $690,000 in September of 2021 according to RedFin. With a property tax rate of 0.28%, a homeowner with a home valued at a median home sales price in Hawaii could expect to pay $1,932 in taxes. Alabama has the next lowest average effective property tax at 0.37%, and its median home sales price in September of 2021 was $256,000. A homeowner whose home is valued at Alabama’s median home value would owe only about $947 in taxes, despite facing a higher effective tax rate. New Jersey gets hammered twice because it has both a high effective property tax rate and expensive property. The median sales price for a home in New Jersey in September 2021 was $423,000. Assuming the homeowner has a home valued for that amount and must pay the average property tax rate of 2.44%, they’d owe a whopping $10,321.20 in taxes.

States with the lowest income tax rates and highest median income

There are eight states with no state income tax in 2022:

Alaska Florida Nevada South Dakota Tennessee Texas Washington Wyoming

Note: Although New Hampshire has no employment income tax, it does have a 5% tax on dividend and interest income. Employment income is a lot more common than dividend and interest income, but it’s still worth considering.

The states with the highest personal income tax rates:

State Top income tax rate Top tax bracket – single Top tax bracket – joint California 13.3% $1,000,000+ $1,198,024+ Hawaii 11% $200,000+ $400,000+ New Jersey 10.75% $5,000,000+ $5,000,000+ Oregon 9.9% $125,000+ $250,000+ Minnesota 9.85% $166,040+ $276,200+ Remember, most states tax income on a marginal basis, which means that each segment of an individual’s income is taxed in progressively larger amounts. All of the states with the highest personal income tax rates use marginal or progressive taxation.

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Here are the nine states with flat income tax rates in 2021:

State Flat income tax rate Colorado 4.55% Illinois 4.95% Indiana 3.23% Kentucky 5.0% Massachusetts 5.0% Michigan 4.25% North Carolina 5.25% Pennsylvania 3.07% Utah 4.95% One thing to note: Income can be taxed at both the federal and state level. Even if a state doesn’t have a personal income tax, an individual may owe money on their income to the federal government. Income tax rates only paint part of the picture. Another big part is how much income folks bring in. This study used U.S. Census Bureau data from 2014 and 2019 to find median income and change over time.

The five states with the lowest median income in 2019 were:

Mississippi – $45,081 West Virginia – $46,711 Arkansas – $47,597 Louisiana $49,469 New Mexico – $49,754

The five states with the highest median income in 2019 were:

Maryland – $84,805 New Jersey – $82,545 Hawaii – $81,275 Massachusetts – $81,215 Connecticut – $78,444 This study also looked at the change in median income over five years. While all states experienced growth in median income, some grew more than others. Alaska’s median income increased a measly 8.1%. Wyoming and Louisiana also lagged, with only 10% growth over five years. Oregon was at the other end of the spectrum, with its median income increasing 24.3% between 2014 and 2019. California and Washington tagged close behind at 22.4% during the same period.

Tips for managing your finances

If you’re already thinking about moving, this study could help you find the right mix of lower costs and better opportunities. But if you’re staying put, there are a few things you can consider to help you manage your finances better. Making a budget is a basic first step that can help you get your arms around your financial situation. Once you know where you’re at, you can set a goal. Maybe it’s paying off debt. Maybe it’s building an emergency fund. Or buying a home. Whatever it is, it’s a lot easier to tackle making a plan if you have a budget and a goal. Thinking about taxes throughout the year can be helpful too. A good place to start is your W-4, if you have one. Many employees fill out W-4s when they begin working for a new employer. These forms tell employers how much should be withheld for taxes from an individual’s paycheck. If you find yourself owing a ton or getting a huge return each year, it may be time to check your W-4 and the allowances you’ve selected. There are also some financial moves to consider before the end of every year to help prepare for tax season.

Regardless of where you are in your financial journey, knowledge is power!

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Methodology

To determine the best states to live in for your finances, all 50 U.S. states were analyzed using the following criteria: State revenue per capita, sourced from the Tax Policy Center State income tax rate, sourced from the Tax Policy Center State and local property taxes collected per capita, sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances Effective property tax rate is based on median property taxes paid divided by median home value, with data sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances Percentage of public pension plan funded, sourced from the Tax Policy Center Median home sales price for September 2021, sourced from Redfin One-year home value appreciation, 2-year home value appreciation and 5-year home value appreciation is based on median home value for all homes from September 2016 through September 2021, sourced from Zillow Groceries cost-of-living index, utilities cost-of-living index, transportation cost-of -living index and healthcare cost-of-living index all sourced from the Missouri Economic Research and Information Center, second quarter 2021 Median household income by state from 2014 and 2019, sourced from the U.S. Census Bureau State pension funding in 2021, sourced from the Pew Charitable Trusts All these factors were scored, then added together to get a final score, allowing Credit Karma to rank states from best to worst.

Sources

creditkarma.com - Best States to Live in for Your Finances in 2022 - Credit Karma

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