Definition & Examples of Cost of Living
The cost of living is a measure based on the amount of money you need to cover your daily expenses, such as housing, medical care, and food. Understanding the cost of living can help you weigh the economic cost of moving to a new city or state.
What is the cost of living?
Cost of living is a way of measuring how expensive it is to live in a particular place, be it a country, state, or city. Cost of living calculations vary depending on who performs them, but in general, the most widely accepted cost of the living measure is the Consumer Price Index (CPI), a metric published by the Bureau of Labor Statistics (BLS) that calculates a variation in prices of consumer goods and services.
The CPI is not the only measure of the cost of living. Any number of organizations or websites could create their own cost of living measures that take into account various goods and services. And there are many cost of living calculators available online.
In the end, all measurements tend to answer one question: How much does it cost to live everyday life in one place at any given time?
Cost of living is a useful metric if you are moving to another city or state and you want to see how the new daily expenses will compare to your salary or salary.
How does the cost of living work?
The cost of living is calculated by taking the price of a part of the goods and services that everyone needs, such as food and housing. Along with that, your income and budget determine how much of these goods and services you can afford. An egg carton could cost just a dollar more in the neighboring city, but the payment could also be higher, mitigating the higher cost of the products.
You can calculate the cost of living using online calculators that analyze these details. Calculators usually help you see what the average price of regular expenses is where you live or are planning to live.
For example, the average price of a gallon of milk in Raleigh, North Carolina, is $ 3.31, but that same gallon of milk will cost you $ 4.04 in Fort Lauderdale, Florida. Rent in Fort Lauderdale is also nearly 50% higher compared to Raleigh. So if you are offered a job with offices in Raleigh and Fort Lauderdale, you can choose to go to Raleigh because your money will go further.
While calculators can be a great tool for understanding the cost of living in specific cities or states, the CPI is a good way to measure the national cost of living trends. The BLS conducts annual consumer surveys across the country to identify what residents spend in eight major groups of consumer categories:
- Food and drinks
- Medical care
- Education and communication
- Other goods and services
In total, the CPI uses the prices of around 80,000 items each month to generate the price index, which provides an overview of how the prices of everyday goods change over time. two
The government uses cost of living data to determine how much to adjust Social Security benefits and retirement payments for military or Federal Civil Service retirees. Millions of people get a cost of living adjustment to benefits and payment.
How you can use the cost of living
If you've ever explored moving to a new city or even the next neighborhood, you may see a drastic difference in earnings and expenses compared to where you live now.
This is because the cost of living determines the cost of living in a particular area based on:
- Health care
- Child care
If you are considering retiring to another state (or even another country), compare the cost of living of the location to where you live now. See what a regular meal costs at a restaurant, or what you will pay, on average, for a one-bedroom apartment in and around the city.
Compare prices for groceries, utilities, and child care, if applicable. Assessing these factors will let you know how far your dollar will go in your new location, giving you an idea of how much more (or less) you will need to earn if you decide to move.
The cost of living is specific to where you live; The cost of living in Montana compared to California is very different.
The cost of living is determined by measurement indices such as the consumer price index.
Cost of living adjustments impact not only goods and services but also Social Security benefits and income for federal service workers.
If you are thinking about moving, compare the cost of living in the new location to where you live now to see how much more or less you will pay.
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