Staying and living in one place for a set period has expenses related to it. This factor is called the “cost of living.” Here is a deeper discussion of our cost of living definition.
What Is Cost of Living?
Cost of living refers to the money associated with covering basic expenses as you live in a certain place. Food and shelter are the primary expenses involved in calculating the cost of living. But it also includes healthcare and taxes as you live in the place for a certain time.
Anyone would use the costs of living in different areas to determine which location fits their budget. It also involves the wages you earn while you work in the area. As such, you might earn more for doing a job in a certain place than another if it has a higher cost of living. In other words, expensive cities to live in will have higher salaries to keep up with the cost of living.
For instance, Ilion has consistently ranked as the most affordable place in New York to live. This title is based on the location’s 1.5x home price to income ratio. Meanwhile, Kenmore has a 2.0x home price to income ratio, making it the 14th most affordable place in New York.
In the U.S., there is no official index measuring how much it costs to live in a particular area. However, some local organizations based in specific areas offer such indexes as guides. They use data from the Consumer Price Index (CPI), which the Bureau of Labor Statistics publishes. This index measures how much goods and services change costs over time in a certain area.
How Is One’s Cost of Living Affected by Their Lifestyle Choices?
How much it costs to live in a particular area influences your lifestyle choices more than the other way around. Suppose your monthly salary is only enough to cover food and rent. With all your income going to necessities, you would spend less on entertainment. Likewise, having enough income to cover necessities while leaving enough for entertainment would provide a different living standard.
However, high salaries that provide enough for non-essential expenses are not the same in every location. For example, suppose you live a lavish lifestyle in one of the most affordable cities, such as Cedar Park, TX, or Provo, UT. Your high salary in these cities may not help you keep up with more expensive cities to live in, such as New York City, NY, and San Diego, CA.
You cannot make the same lifestyle choices that you’d make in an affordable city when you live in an expensive city. You must adjust your expenses according to your income while considering the city’s cost of living.
How Has Rising Cost of Living Impacted the Lives of People Earning Low Wages?
Costs of living rise due to the inflation of expenses. People earning low wages in the first place would have even less disposable income for their standard of living. Hourly wages must keep up with the rising cost of living to maintain a standard way of life. This idea has spurred debates over the minimum wage.
Those who propose boosting wages state that workers would be more productive. Meanwhile, those against increasing minimum wages argue that consumer prices would likewise grow. Government initiatives for low-income households include granting subsidies. Eligible households may receive federal assistance.
How Can You Decrease Your Cost of Living?
Rising costs of living are ongoing issues that the government must address. However, there are some ways you can navigate these growing prices. Here are some ways to decrease your cost of living:
- Track Your Expenses: List down where your income goes. This way, you know exactly where your money goes.
- Craft Your Budget: Be sure to prioritize your basic needs when allotting portions of your income. This strategy would help you determine whether you have enough disposable income.
- Minimize Energy Usage: Reassess how many appliances you have at home. Be sure to unplug any machines that are not in use and turn off lights in empty rooms. Relatedly, consider switching to more energy-efficient light bulbs.
- Consolidate Debts: Review your pending loans and look into your consolidation options. For instance, your federal student loans may be eligible for consolidation. Consolidating student loans involves getting a new, single policy to pay off multiple loans with a lower interest rate. This way, your money would go to one loan instead of several.
- Limit Unnecessary Expenses: Consider skipping weekends out with friends or having dinner at fancy restaurants. Similarly, review your cable or video-on-demand subscriptions. You might be spending monthly expenses on something that you cannot enjoy to the fullest because of your schedule.
Cost of Living Example
San Francisco, CA has the most expensive cost of living in America, with an overall rate of 269.3. Meanwhile, the cost of living in Mississippi is the cheapest in America, with a rate of 101.7. In contrast, the national average cost of living is 100.
In addition to these figures, people living in San Francisco have an average income of $100,000 to sustain their lifestyles. Meanwhile, Mississippi’s median household income is around $45,000 for its cost of living.
Wrapping It Up
Cost of living is how much money you must spend to sustain your standard of living in a certain location. Your living standard involves your ability to afford basic expenses, including food, housing, healthcare, and taxes.
Having a high salary may afford you a rich standard of living in an affordable area because of disposable income. However, maintaining the same standard in a place with a higher cost of living might not be possible. As such, salaries must reflect an area’s cost of living. In other words, how much a person makes must be enough for them to pay for their necessities.
Keeping up with an area’s cost of living might require you to reassess your budget. Consider plotting your expenses so you have a concrete idea of where your income goes. This way, you can start saving money while you sustain your standard of living.