# Cost Of Living: Calculating How Much You Need

##### By Wilbert S

January 10, 2024   •   Fact checked by Dumb Little Man

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The term Cost of living has become an important subject especially when there are inflation and gas price fluctuations in the economies across the globe. The cost of living not only impacts the citizen or consumers but also influences the economists and politicians in general. As a result, it becomes inevitable to calculate the cost of living of any city in the world to find out its affordability.

At a macro level, the cost of living index helps to analyze an economy and helps in making future economical decisions. On the other hand at a micro level, the cost of living index helps the individuals to make their monthly or annual budget and also guides them in considering a move to an affordable city in the country.

In this regard, this review will help the readers in planning or budgeting their income to evaluate their living expenses and guide them on how much it costs to live in cities throughout the country.

## What is “Cost of Living”

The cost of living can be defined as the total amount that an individual would need to cover their basic expenses in a certain area or city within a country. Since each city has different prices for goods and services, therefore the cost of living also varies from one city to another. For instance, the cost of living is much higher in a city like New York compared to another city like Ohio, even when both cities are in the same country.

Whenever a person wants to shift or migrate to a new city or country, they would require to calculate the cost of living to make the ultimate decision of moving permanently. If after comparing the prices of goods and services the individual assesses that they can bare the expenses then relocating is a good option.

Even when the cost of living is essential information for all citizens of a country, many federal governments including the USA do not calculate or generate data for measuring the official cost of living index. Consequently, every quarter of the year, the cost of living is calculated by various financial organizations such as the council for community and economic research, to find out how expensive or affordable it is for an average salaried individual to live in a certain city.

The cost of living is tied with the national average income of people in a given area. The salary levels communicate how affordable or expensive a city is for people to live in. The factors which make up the cost of the living index include expenses of housing costs, food prices, transportation expenses, and other miscellaneous expenses. All in all cost of living index tells us what would be the expenses to maintain a certain standard of living.

## How to Calculate Cost of Living

To make a better financial decision, an individual must make a monthly or annual budget. Budgeting helps control the spending, manage the expenses, and assist in saving money. However, an effective budget can only be made after calculating or measuring the cost of living.

The best way of calculating the cost of living is to make a total of all the fixed monthly living expenses. This would include housing costs, food costs, transportation expenses, entertainment costs, and other necessities such as health. However, it is important to calculate these expenses by the monthly salary and not end up in debt. Hence, all expenses without going into debt every month are the monthly cost of living.

These days the cost of living calculator is also available to make the process more easier and accurate. A cost-of-living calculator is an effective tool, not only to make a monthly budget but also if a person is planning to move to another city as it assists in finding out the median income needed to maintain the current standard of living.

Many worthwhile software and data companies have an effective cost of living calculator such as the Federal Reserve Bank of St. Louis. With this calculator, individuals can make comparisons of the cost of living between cities as well as the states.

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## How is a Cost of Living Adjustment

Cost of living adjustment is a term that is associated with the idea of inflation. Inflation is measuring the increase in the price of goods and services or the decrease in the buying power of the consumer. As a result, the cost of living index or the living wage needed to maintain a certain standard of living needs to be adjusted according to inflation.

Since the prices of goods and services are never stable due to the constant fluctuation in the oil prices, in this regard, the cost of living adjustment is made. The cost of living adjustments is made at multiple levels. Both Social Security and Supplemental Security Income (SSI) are balanced by the government so that the people can keep up with inflation.

The prices of goods and services affected by inflation are compared every year by the community and economic research departments. In cases where there is a decrease in the prices of goods and services or the national average rate of inflation is not high enough to substantiate inflation, the cost of living adjustment would not be implemented.

There are also some specific costs of living adjustments made for certain employees. For instance, the cost of living adjustments is made for jobs that are assigned in cities with a higher cost of living than their home city. However, this cost of living adjustment is made temporarily and it expires when the work assignment is completed.

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## Conclusion: Cost of Living

The term cost of living is the average income needed to sustain a certain lifestyle or standard of living by calculating the costs of monthly expenses. These expenses include fixed costs such as housing, food, taxes including property tax, sales tax and local taxes, and healthcare. Other flexible expenses are also included in the cost of living calculation such as transportation costs, entertainment costs, and other living expenses.

The cost of living is not only calculated for consumer guidance on budgeting but also acts as an advisor to determine the location to live in. The cost of living index reflects the living comparison between different cities. Individuals can compare the high cost of living in the more expensive cities with the current city. Consequently, individuals can make decisions about moving to an expensive city or metropolitan area based on these statistics.

The cost of living is tied to a living wage or annual income. If expenses are higher in a city, such as San Francisco or New York, for example, the average income or salary should also be higher so that people can afford to live in that city.

Furthermore, the cost of living index can also help individuals to save more money because individuals can then make smart decisions to move to a city where the salary can provide a high standard of lifestyle in a city where day to day utilities such as rent, food, healthcare, and entertainment expenses are less. All in all, we can say that the cost of living index is an essential tool for budgeting and management of finances.

## Cost of Living FAQs

### What is an example of the cost of living?

The cost of living calculator for family budgeting was used to determine the living cost in major counties of all metropolitan areas in the year 2018. The findings of the calculator reflected how much salary would a family need to afford the cost of living in 611 cities.

The calculator also found that San Francisco was the most expensive city and a household with a family of four would at least need a pay \$148,439 for a basic budget for expenses. The least expensive city was Brownsville, Texas where the same family would need a median income of \$32,203.

### What is the US average cost of living?

The average cost of living in any country varies when compared to different sources because some sources only calculate the fixed expenses while other includes all the utilities. It is important to look for the utilities which are covered in any given cost of living index.

The average monthly living expenses including the rent, food, health, taxes, transportation, and entertainment expenses for a single person in the USA are \$3,189, which is \$38,266 per year. On the other hand, the average cost for a family of four is \$7,095 per month, which is \$85,139 per year. However, it should be noted that these statistics are prone to change annually due to inflation.

### How much is the cost of living in the UK?

The United Kingdom is among the most expensive countries in the world and surely living there comfortably would be expensive. On average it is estimated that an individual need to spend £30,000 annually to spend on all major expenses related to housing, food, transportation, taxes, healthcare, and leisure activities.

However, more specifically the cost of living index estimates that a family of four would have to bear costs are 2,933\$ (2,285£) exclusive of rent expenses. Whereas, individual homeowners would need 844\$ (657£) exclusive or housing expenses. Even when the UK is considered to be one country with the highest cost of living, it should be noted that the average cost of living in the United Kingdom is, on average, 6.98% lower than in the United States.

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##### Wilbert S

Wilbert is an avid researcher and is deeply passionate about finance and health. When he's not working, he writes research and review articles by doing a thorough analysis on the products based on personal experience, user reviews and feedbacks from forums, quora, reddit, trustpilot amongst others.