Your decision of where to live has ramifications across all aspects of your life. Today, we’ll explore the cost of living expenses, the final of three topics in this series. I’ll also show you a a couple tools to help you decide… or if you are just curious about your state fits in the rankings.
Various organizations collect data on the relative cost of living expenses in various areas. That data is used to create what is called a ‘consumer price index’, which can help you understand how far you’ll be able stretch your paycheck when moving to a new region. It also helps companies determine their prices while adding new locations or products.
The methodology of CPIs are pretty simple. 1) Create a ‘basket of goods’ that most people would purchase regardless of where they live… think of things like milk, bread, housing, & gasoline. 2) Find the price of those goods in each region. 3) Set up an index against which to score the priced baskets from each region (ex. using a baseline score of 100).
CNN’s Money Blog put together a simple calculator you can use to see what income you’d need to match your current earnings in another city. Check out this example:
A far more detailed tool can be found at BankRate. I like their tool because it reveals the price of each of the 44 items in their basket of goods. I compared Seattle and Salt Lake City to find that a house in the Emerald City would cost me an extra $88,000, but electricity is $17 more per month in the City of the Saints. Play around and you might be surprised.
For a quick reference, here is a map by Business Insider, using data from the US Bureau of Economic Analysis. As you can see, the most expensive regions are Hawaii, Silicon Valley, New York City, Los Angeles, and Washington DC. Rural area tend to be less expensive, with many of the cheapest regions being found in the South East.
Finally, don’t forget that your city is your home, not an investment. Its not worth living in a place that’s affordable if you are just going to be miserable the whole time. Consider your proximity to family and loved ones. There are numerous online lists rating cities on ‘livability‘ or ‘quality of life‘ that compare things like healthcare, security, purchasing power, housing, traffic, and pollution. Do your homework.
If you’re planning to make a big move, let me know where and why in the comments.