Cost Of Living

What Is Cost of Living?

Cost of living is a measurement based on the amount of money you need to cover your everyday expenses, such as housing, health care, and food. Understanding cost of living can help you weigh the economic cost of moving to a new city or state.

Cost-of-living calculations vary based on who is performing them, but in general, the most widely accepted cost-of-living measure is the consumer price index (CPI)—a metric published by the Bureau of Labor Statistics (BLS) that calculates the change in prices for consumer goods and services.

The CPI isn’t the only cost-of-living measurement. Any number of organizations or websites could create their own cost-of-living measurements that take various goods and services into account. And there are plenty of 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 location at any given time?

Cost of living is a helpful metric if you’re moving to another city or state and want to see how new everyday expenses will compare with your salary or wage.

How Does Cost of Living Work?

Cost of living is calculated by taking the price of a portion of goods and services 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. A carton of eggs might only cost a dollar more in the next city over, but the pay might also be higher, which tempers the higher cost of goods.

You can calculate cost of living using online calculators that analyze these details. Usually, calculators help you see what the average price of regular expenses are where you live or are thinking about living.

For instance, 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 almost 50% higher compared to Raleigh, too. So if you’re offered a job with offices in Raleigh and Fort Lauderdale, you may choose to go to Raleigh because your dollars will go further there.1

While calculators can be a great tool to understand cost of living in specific cities or states, CPI is a good way to gauge national cost-of-living trends. The BLS performs yearly surveys of consumers across the country to identify what residents spend in eight major groups of consumer categories:

• Food and beverages
• Housing
• Apparel
• Transportation
• Medical Care
• Recreation
• Education And Communication
• Other Goods And Services

In all, the CPI utilizes the prices of around 80,000 items each month to generate the price index, which gives an overview of how prices for everyday goods change over time.

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 individuals get a cost-of-living adjustment to benefits and pay.