Cost of living is a difficult number to pin down. For example, it’s probably fair to say that moving from the midwest to the coast of California is going to all but guarantee you a hike in living expenses, but how do you calculate a numerical value? (Because last time I checked, you need actual numbers for a budget…) There are, in fact, a slew of different factors that contribute to cost of living.
First, it’s important to understand exactly what cost of living means. Cost of living is a metric that estimates how much you’d be paying for living essentials (food, shelter, taxes, etc.) with respect to other areas of the country. This is very similar to purchasing power, or how much you can buy with one ‘unit’ of money. Using our example, $100 somewhere in the Midwest might get you dinner for 10, while in California, the same $100 will only feed the same dinner to 4. Hence, your purchasing power is lower and your cost of living is higher in California.
That may sound fine, but what happens when we’re comparing more than just the cost of dinner? It gets a little more complex when you add all the other essentials of living. Trying to define what essential goods are, which essentials to use, and finally start comparing all of the prices gets hairy, and on top of that, not everyone agrees on which goods should be considered essential. If you’re determined, this list of essential goods and ‘how-to’ on cost of living calculations as a good place to start.
For the rest of us, feel free to use a tool like this so we can focus on the takeaways. The first thing you notice is that it’s way more expensive to live in densely populated, metro areas. Unsurprisingly, New York comes in at the most expensive area on the map with a cost of living index of 276, almost double Kansas City’s 152. In more relatable terms, the map also shows us that the median home price in N.Y. is just over $1 million more expensive than those in Kansas City. Take these stats in tandem and you realize that even if you can afford to buy a house in NY, you’ll be paying more in day-to-day life, too. While both of these cities are considered ‘hotspots,’ it’s important to recognize that costs can vary dramatically even between the most expensive locations.
You should consider the cost of living in your dream destination before you commit to making the move. Just because you can afford the house doesn’t necessarily mean that you’ll be able to live just as comfortably as you did in your last home. Use a service or your own calculations to estimate what your costs will be in your next home, and don’t let cost of living surprise you and your budget.