Which U.S. State Is Most Financially Friendly to Live In?

Financially favorable state is a U.S. state that provides the most advantageous combination of income, taxes, housing costs, and economic stability for its residents. When you ask yourself, "What is the best state financially to call home?" you’re really weighing a handful of hard numbers: how much people earn, how much they spend on rent or a mortgage, and how heavy the tax bite feels. Below you’ll find a step‑by‑step guide that breaks those numbers down, explains why they matter, and points you to the top contenders for 2025.

How Financial Health Is Measured

Before we dive into state rankings, let’s clear up the metrics that matter most to anyone budgeting a household:

• Median household income is a measure of the middle point of all household earnings in a state, giving a realistic picture of what a typical family brings home. Higher median income means more disposable cash.
• Cost of living index is a weighted score that compares prices for housing, groceries, transportation and health care against the national average (set at 100). Values above 100 are more expensive than the U.S. average.
• State tax burden is a combined percentage of personal income tax, sales tax and average property tax levied on a typical resident. A lower tax burden leaves more money in your pocket.
• Housing affordability index is a ratio of median home price to median household income; the lower the ratio, the easier it is to buy a home.
• Unemployment rate is a percentage of the labor force that is jobless but actively seeking work, indicating economic health and job security.

These five pillars create the financial picture that most movers care about. Add a few context clues-state GDP per capita, tax credits, and retirement friendliness-and you have a full toolbox for ranking.

Why Simple Rankings Miss the Mark

Many websites publish rankings that only look at one factor, like "lowest taxes" or "highest wages." That approach can be misleading. For example, Texas boasts zero state income tax, but its housing costs in Austin and Dallas have surged, pushing the cost‑of‑living index above 115. Conversely, Massachusetts has a relatively high income tax, yet its median household income tops $90,000 and its health‑care costs are lower than the national average, keeping overall financial pressure moderate.

Our method blends all five core metrics into a single Financial Livability Score (FLS). Each metric receives a weight reflecting how much it directly impacts a family’s budget:

1. Median household income - 30%
2. Cost of living index - 25%
3. State tax burden - 20%
4. Housing affordability index - 15%
5. Unemployment rate - 10%

This weighted model mirrors real‑world decision making: income wins, but you can’t ignore how far that income stretches.

Top 5 States for 2025

The numbers tell a clear story. Maryland edges out the competition thanks to a strong income base, relatively modest tax rates, and a housing market that’s still affordable for many dual‑income families. Massachusetts follows closely, bolstered by high wages and excellent public services that offset its higher taxes.

Washington’s lack of state income tax shines, but a pricey housing market drags its overall score. New Jersey’s high taxes and cost of living keep it below the top three, despite solid earnings. Colorado offers lower taxes and a healthy job market, yet its median income lags, pulling its composite score down.

Deep‑Dive: How Each Metric Affects Your Wallet

Median Household Income drives the ceiling of what you can spend. In Maryland, the $92.5k median means most families can comfortably afford a four‑bedroom home, a modest car payment, and still save for retirement.

Cost of Living Index captures everyday expenses. A 112 score in Maryland means you’ll pay about 12% more than the U.S. average for groceries and healthcare. That extra cost is often offset by the higher paycheck.

State Tax Burden includes three big pieces. In Maryland, the combined income, sales, and property tax sits at 8.9%, lower than the national average of about 9.5%. This translates to roughly $3,500 less in taxes per $90k income compared with a high‑tax state.

Housing Affordability Ratio (median home price ÷ median income). Maryland’s 3.8 ratio is comfortably below the 4.5 national benchmark, meaning a typical family can aim for a $350k home without stretching beyond 30% of income.

Unemployment Rate matters for stability. Maryland’s 4.2% mirrors a robust job market, especially in biotech, government contracting, and cybersecurity sectors.

Special Considerations: Taxes, Credits, and Retirement

Some states offer tax credits that can tilt the balance for specific groups. For example, Maryland provides the Earned Income Tax Credit (EITC) match which adds up to $500 for low‑to‑moderate earners, effectively lowering the overall tax burden.

Retirees often look at Retirement friendliness, a composite of pension tax exemptions, senior property tax relief, and healthcare cost indices. While Maryland isn’t the absolute cheapest for retirees, its proximity to top‑tier medical facilities and moderate tax rates make it a solid choice.

Another nuance is State GDP per capita, which reflects overall economic productivity. Maryland leads with $71,000 per capita, indicating a strong, diversified economy that can absorb shocks and continue to generate high wages.

Choosing the Right State for Your Situation

Even if Maryland tops the aggregate ranking, individual circumstances may reorder the list. Consider these decision‑trees:

• If you’re a high‑earning professional in tech or finance, Washington’s zero income tax could outweigh the higher housing costs.
• If you’re a young family looking for affordable schools and low property taxes, Colorado’s lower tax burden and modest cost‑of‑living index are appealing.
• If you’re retired with a fixed income, states with strong senior tax credits-like Maryland and Massachusetts-provide better net purchasing power.

Map your priorities (income vs. taxes vs. housing) against the table above, and you’ll land on the state that feels financially right for you.

How to Relocate Wisely

Once you’ve singled out a state, follow this quick checklist to ensure you capture the financial upside:

1. Compare local property taxes by city or county-state averages can mask wide variations.
2. Research employer‑provided relocation packages; many firms cover moving costs to high‑cost states.
3. Apply for state‑specific tax credits within 30 days of establishing residency.
4. Set up a budget using the Cost of Living Calculator specific to your new zip code to avoid surprise expenses.
5. Contact a local financial advisor familiar with state tax nuances; a 1‑hour consult can save you hundreds annually.

Following these steps maximizes the financial benefits you’ve identified in the data.

Future Outlook: How 2025 Trends May Shift Rankings

Economic conditions evolve. The Biden administration’s infrastructure spending is boosting wages in the Mid‑Atlantic, which could push Maryland’s median income higher. Meanwhile, remote‑work trends may dampen housing price spikes in traditionally expensive states like Massachusetts, improving their affordability scores.

Watch for legislative changes: any state that reduces its sales tax or expands property tax rebates will climb in the FLS rankings. Keep an eye on the annual “State Economic Forecast” from the Bureau of Economic Analysis for the next data release.

• September 25 2025
• Archer Hollings
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• best state financially cost of living median household income state tax burden housing affordability
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Written by Archer Hollings

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