People mention the cost of living all the time it seems. However, few talk about the actual significance of the cost of living. It can be a huge determining factor regarding which opportunities in your life are good and which ones are not. It can also be a sign of dense crowds and overpopulation. Many careers are good (or bad) options partially because of where they may require you to live. For example, one job that gives you the ability to work in a low cost of living area may be a far better option than one which gives you opportunities only in high cost of living cities.
The cost of living is important, and it’s up to you to figure out how important it is for your family and what you may need to do to fix it.
What Is The Cost Of Living?
The cost of living is basically how much it costs to live in a specific area, especially relative to other locations or the national average. For example, large cities in California and New York are generally incredibly expensive, particularly because housing is in high demand (and consequently outrageously expensive) and usually groceries have a higher average price.
A medium-sized city on the east coast might be about average (compared to the whole nation) in terms of the cost of living. However, a rural town in the Midwest would probably cost next to nothing compared to something like New York City.
Why Is That Important?
It’s important because it directly impacts how effective each dollar you spend is. If it is twice as expensive to live in city A, but you can make almost the same salary in the cheaper city, B, then why wouldn’t you live in the cheaper location? Out of a purely financial motive, city B in that example would be the obvious choice for you to move to. Of course, choosing where you live has to do with a lot more than just the cost of living. However, it’s still useful to know when weighing your options and is definitely the deciding factor for many people.
How Is It Measured?
Well, cost of living isn’t a perfect science, and measurement tactics vary. However, I’ll do my best to make it as simple as possible:
- Housing is generally the first and largest contributing factor calculated. Usually the median home prices and rent cost are taken to get an approximation of how much housing costs. Your utilities will also be included in this category.
- For produce and general groceries, the average price in the area is usually calculated based on the largest sample size available. Using that average price, it can then be compared with the cost of groceries in other areas. Again, this isn’t perfect, but it’s a fairly accurate way to handle it.
- Often times, the average amount spent on transportation, healthcare, and entertainment is also considered. These vary wildly even within a specific area, so less weight is usually given to these items. More often than not, this data is just presented as other things to consider, as it is probably a small part of monthly expenses.
If you’re curious about cost of living calculators, just use one of many that you can find online.
It’s Harder To Calculate Than It Sounds
As I said earlier, it’s not an exact science. While it would be nice to have all of the information set in stone and completely reliable, that just isn’t life. Cost of living calculators can be a good estimation, but don’t rely on just those tools. If you’re seriously considering moving somewhere, but it sounds too expensive, do some research of your own. You may find out there are ways to get around some of those higher costs. For example, if you’re willing to live a town over (or something along those lines) you may be able to get a much better deal on housing – albeit with a longer commute.
Inflation’s Impact
Obviously inflation is something you’ll have to deal with everywhere. However, if the cost of living already pushes you to the limit, and your income doesn’t keep up with inflation, you’ll be hard-pressed to make ends meet. Play it safe. If you can barely afford to live somewhere now, take the time to consider alternatives, unless moving to a higher cost of living area will really help your income grow.
Of course, there are exceptions to every rule. For example, you may have to move for medical reasons, in which case you will have to deal with things as they are. For those with a choice, be sure to weigh those options carefully.
Cost Of Living Does Not Account For The Typical Salaries In The Area
This is something really important to know. Yes, the median salary is GENERALLY higher in expensive places to live. Also, a lot of companies try to pay appropriately for the market you’re working out of. However, salaries tend not to scale up proportionally with cost of living. For example, when I first graduated college I basically had two options. I could stay where I live (and not pay any expenses related to moving), or I could take a 30% higher salary and live in a more expensive area.
I stayed. Cost of living calculators estimated the cost of living to be about 60% higher than where I was living, and when I tried to find apartments they were usually 2-3x the cost of what I could find locally. It just didn’t make sense. Again, remember that the salary doesn’t always increase proportionally to the cost of living.
Relocation For Career Opportunities
Most of this is really important for career opportunities or relocation for major life events. At some point, when you get a job offer somewhere else, even if it seems great, remember to do your research. If I had just blindly taken the higher offer, I probably would’ve actually had a much smaller disposable income! If you need to, don’t be afraid to negotiate for relocation assistance.
Conclusion
Remember to look at the big picture. Take into account the cost of living, the income you can make there, as well as any personal reasons you have to choose to live somewhere. As always, if you have any thoughts on this topic be sure to leave a comment!
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