How to Calculate Your Cost of Living
Determining the cost of living in your current location or for potential moves is a key step in personal budgeting and financial planning. If you’re relocating to another city or region, it’s important to know what you’re in for when it comes to cost of living expenses. Calculating your cost of living simply involves measuring the cost of essentials such as rent, transportation, food and utilities in the area. By doing so, it’s easier to determine a budget and if your current income is sufficient.
What’s Included in Your Cost of Living Expenses?
Before you can calculate your cost of living, you need to know what’s included when measuring it. Generally, most people look at their housing costs, transportation costs, food costs, utilities and healthcare costs when factoring in their cost of living.
For housing, you’ll need to include rent or mortgage payments, as well as other monthly costs associated with owning or renting a home or apartment such as trash collection, homeowner’s association fees or renters insurance.
In addition to housing, you should also consider transportation costs. This would involve costs such as gas, public transportation fees, car payments, car insurance and car repairs.
It’s also important to account for food costs. The amount you spend on groceries, eating out and other food-related expenses in an area can vary drastically — so the food costs associated with your cost of living should be taken into consideration.
Utilities such as electricity, gas, water and television and internet bills also add up and need to be accounted for in your overall cost of living. And finally, you’ll want to possibly account for any healthcare expenses such as copays and health insurance premiums based on where you live and the cost of healthcare in the area.
How to Calculate Your Cost of Living
To start calculating your cost of living, you’ll first need to create an accurate budget. This means accounting for each monthly expense such as rent or mortgage payments, transportation costs, food costs and utilities.
Once you have a list of all the monthly costs associated with living in the area, you can add them all up to determine your monthly cost of living expenses. For example, say your rent payments and other housing costs total $1,000 per month, your transportation costs are $200, your food costs are $300, your utilities are $100 and your healthcare costs are $100, your total cost of living would be $1,700 per month.
In addition to this general number, you’ll also want to factor in additional costs associated with leisure activities, miscellaneous expenses and unexpected costs such as emergency repairs or hospital visits. These costs should be accounted for, though the amount spent on leisure activities is often up to personal preference and lifestyle.
Comparing Different Locations
To get an accurate picture of your cost of living in a particular area, most people find it’s helpful to compare the cost of living in one area to another. Many online tools exist to help compare the cost of living in different cities or regions so you can make an informed choice based on the areas you’re considering.
One popular website, Numbeo.com, allows you to compare different cities’ cost of living by looking at overall figures such as cost of living index and rent index as well as individual costs such as rent, groceries, restaurant prices and more.
Additionally, you can use the website to compare a location’s purchasing power, which compares the cost of living and salary of the country you’re looking at to the United States. As a result, you can get an idea of how far your dollar goes in the locations you’re considering.
When to Update Your Cost of Living Calculation
It’s important to keep in mind that your cost of living can and will change over time based on citywide population changes, local and national economic factors, and other factors. As such, you should check your cost of living at least once every year to make sure it’s accurate — and make sure you’re budgeting and planning with the most up-to-date figures.
Determining the cost of living in your current city or for potential moves is an important part of budgeting and financial planning. By taking into account factors such as rent, transportation, food, utilities and healthcare costs, you can calculate your overall cost of living. Additionally, there are comparison tools available to help you compare different cities’ cost of living so you can make an informed choice based on the areas you’re considering. It’s important to keep in mind that your cost of living can and will change over time, so checking it regularly is important to ensure you have the most accurate figures available to budget and plan.
