Definition and Examples of Cost of Living
The cost of living is a measurement based on the amount of money you need to cover your daily expenses, such as housing, healthcare, and food. Understanding the cost of living can help you evaluate the economic cost of moving to a new city or state. Cost of living calculations vary based on the method used, but generally, the Consumer Price Index (CPI) is the most accepted measure of the cost of living – a metric published by the Bureau of Labor Statistics (BLS) that calculates the change in prices of goods and services consumed.
How Does Cost of Living Work?
The cost of living is calculated by assessing the price of a selection of goods and services that everyone needs, such as food and housing. Alongside that, your income and budget determine how well you can afford these goods and services. The price of a dozen eggs might be just one dollar higher in a neighboring city, but the wage might also be higher, offsetting the increased cost of goods.
You can calculate the cost of living using online calculators that analyze these details. These calculators typically help you see what the price of common expenses is in the place where you live or are considering living. For example, a gallon of milk in Raleigh, North Carolina, costs $3.31, but the same gallon of milk will cost you $4.04 in Fort Lauderdale, Florida. Rent in Fort Lauderdale is approximately 50% higher compared to Raleigh. If you receive job offers in offices in both Raleigh and Fort Lauderdale, you might choose to go to Raleigh because your money will stretch further there.
While calculators can be a great tool for understanding the cost of living in particular cities or states, the Consumer Price Index is a good method for measuring cost trends across the country. The Bureau of Labor Statistics conducts annual surveys of consumers across the nation to determine what residents spend in eight major categories of consumer expenditures: food and beverages, housing, apparel, transportation, healthcare, recreation, education and communication, and other goods and services.
How Can You Use Cost of Living?
If you’ve ever explored moving to a new city or even the next neighborhood over, you may see a huge difference in wages and expenses compared to where you currently live. This is related to the cost of living, which determines how much it costs to live in a specific area based on housing, food, transportation, healthcare, taxes, childcare, and education.
If you are thinking about retiring in another state (or even another country), compare the cost of living in your new location to where you currently live. Look at what a typical restaurant meal costs, or what you would pay on average for a one-bedroom apartment in the city and surrounding area. Compare the prices of groceries, utilities, and childcare, if applicable. Evaluating these factors will allow you to understand how far your dollar will stretch in your new location, giving you an idea of how much more (or less) you will need to earn if you decide to move.
Key Takeaways
– The cost of living is related to where you live.
– The cost of living is determined by metrics such as the Consumer Price Index.
– Adjustments in the cost of living affect not just goods and services but also Social Security benefits and income for federal service workers.
– If you’re considering a move, compare the cost of living in the new location to where you currently live to see how much more or less you will pay.
Source:
https://www.thebalancemoney.com/what-is-cost-of-living-5101122
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