The cost of living is a calculation based on how much money you need to meet your daily needs, such as housing, health care, and groceries. Understanding the cost of living might help you consider the financial implications of relocating to a different city or state.
Cost-of-living estimates differ depending on who does them, but the consumer price index (CPI)—a statistic issued by the Bureau of Labor Statistics (BLS) that analyzes price changes for consumer goods and services—is the most frequently acknowledged cost-of-living indicator.
The CPI is not the sole cost-of-living indicator. Any number of organizations or websites might develop their own cost-of-living calculations that take diverse commodities and services into consideration. And there are several cost-of-living calculators available online.
Finally, all metrics tend to answer the same question: how much does it cost to live a normal life in one place at any given time?
The cost of living is a useful indicator if you’re relocating to another city or state and want to see how your new daily costs will compare to your earnings or wage.
How Does the Cost of Living Work?
The cost of living is computed by taking the price of a subset of the commodities and services that everyone need, such as food and shelter. Furthermore, your salary and budget dictate how much of these items and services you can purchase. A carton of eggs may only cost a dollar more in the next city, but pay may be greater, offsetting the higher cost of commodities.
You may determine the cost of living by utilizing online calculators that assess these factors. Calculators often assist you determine the average cost of routine expenses in the area where you live or want to live.
For example, in Raleigh, North Carolina, the average price of a gallon of milk is $3.31, but in Fort Lauderdale, Florida, it costs $4.04. In addition, rent in Fort Lauderdale is about 50% greater than Raleigh. So, if you’re given a position with offices in both Raleigh and Fort Lauderdale, you could select Raleigh since your money will go further.
While calculators can be useful for understanding the cost of living in individual towns or states, the Consumer Price Index (CPI) is a helpful approach to track national cost of living changes. The Bureau of Labor Statistics conducts annual surveys of consumers across the country to determine what residents spend in eight key consumer categories:
Food and beverage
Housing
Apparel Transportation
Medical care.
Recreation
Education and Communication
Other products and services.
Overall, the CPI uses the prices of over 80,000 products each month to create the price index, which provides an overview of how prices for ordinary commodities vary over time.
Note
The government utilizes cost-of-living statistics to calculate how much to alter Social Security benefits and retirement payments for military or Federal Civil Service retirees. Millions of people receive cost-of-living adjustments to their benefits and wages.
How to Use Cost of Living
If you’ve ever considered relocating to a new city or simply the next neighborhood over, you may notice a significant difference in wages and expenditures compared to where you now live. That’s because cost of living influences the cost to live in a certain place depending on:
Housing
Food Transportation
Healthcare Taxes
Childcare Education
If you are thinking of retiring in another state (or perhaps another country), compare the cost of living there to where you now live. See how much a typical restaurant meal costs, or how much you’ll pay on average for a one-bedroom apartment in the city and surroundings. Compare grocery prices, utilities, and child care, if applicable. Evaluating these elements will tell you how far your dollar will go in your new area, and how much more (or less) you’ll need to earn if you decide to relocate.
