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What Is Cost of Living: A Definition + How-to Guide

September 12, 2022
Cost of living describes the amount of money needed to cover basic living expenses, such as housing, food, and transportation costs in a specific city.

Cost of living is the amount of money you need to cover everyday living expenses, such as food, gas, transportation, and housing. With this information, you can more easily spot new affordable cities that align with your budget if you're looking to make a move sometime soon. And with recent data showing that overall cost of living expenses increased by 13 percent in 2022, there's never been a better time to educate yourself.

Use this overview and how-to guide to learn the ins and outs of how cost of living works, how to calculate it on your own, and how to compare cities that have caught your eye. We’ve even featured our newly designed cost of living calculator and renter tips for those seeing an increase in their living expenses.

Some pretty exciting stuff — we know. So let's get started, shall we?

How to Calculate Cost of Living

how-to-calculate-cost-of-living Cost of living rates are calculated by comparing the prices of essential goods and services you spend your money on daily, like housing and transportation. Other cost of living factors considered when making these calculations include:

  • Utilities
  • Food
  • Education
  • Health care
  • Child care
  • Taxes
  • Entertainment

Your income, personal budget, and spending patterns are then considered to help determine how much of these goods and services you can afford. For example, last year's housing and transportation costs took up 29% and 13% of people's budgets, respectively. Once these prices are gathered and weighted appropriately, you can see the differences in the cost of living in your area compared to others surrounding you.

Keep in mind that using a cost of living calculator can make this process much easier. It provides a quick and accurate breakdown of the average cost of living expenses you can expect to pay in cities you're interested in. From there, you can conveniently browse relevant and detailed insights regarding specifics like grocery, transportation, and utility costs.

How to Compare Cost of Living Between Cities

You can make cost of living comparisons effortlessly by taking advantage of our cost of living calculator.

Simply enter where you currently live, where you want to go, and your monthly income after taxes. Once complete, you'll see the monthly income you'll need to maintain your standard of living along with a breakdown of how cost of living expenses compare to where you live now.

Let's say you live in Oakland, CA making $4,500 a month after taxes, and you want to move to Birmingham, AL. You'll see that you need to make at least $2,741 to maintain your current lifestyle. Scroll down further, and you'll find that rent is 42% lower compared to your present area, along with comparisons of other typical cost of living expenses, such as groceries, health care, transportation, etc.

How to Deal with Cost of Living Increases

check-out-at-store A number of things can lead to increases in a renter's cost of living, from a rise in inflation to increased taxes on goods and services. Luckily, there are things you can do to lower these necessary expenses. Some of our suggestions include:

  • Finding a roommate: Finding a roommate not only helps you save on rent but also creates the potential to make a life-long friend during your rental journey.
  • Creating a budget: Tracking your spending habits by creating a budget can help balance out cost of living increases by spotting areas where you're overspending.
  • Negotiating your bills: Different service providers offer deals and special packages to help customers save money monthly.
  • Moving to a cheaper city: Consider moving to a more affordable city to help reduce cost of living expenses such as rent, utilities, groceries, and gas.
  • Securing a remote job: Remote positions allow you to save on transportation costs, helping eliminate a significant living expense from your budget.

Whether you're an experienced or first-time renter, learning what cost of living is, how it works, and the ways it's compared from city to city is no easy task. However, you can use the information above as a guiding light as you continue your rental journey. Because there's nothing more important than being comfortable and financially secure in the place you call home.

About Our Cost of Living Calculator

Apartment List’s calculator sources data published by The Council for Community and Economic Research (C2ER). Since 1968, this council has published cost of living index (COLI) reports quarterly, “using over 60 goods and services collected at the local level from over 300 independent researchers.” This unique and robust data collection has made the C2ER the only local level cost of living index available for the U.S.

Cost of Living FAQs

How does cost of living vary from place to place?

Cost of living can vary from place to place because of the difference in pricing for everyday goods and services in those areas. For example, rent in Los Angeles, CA tends to be higher because of its dense population. Whereas in cities like Indianapolis, IN, there are significantly fewer people residing, allowing rent to stay cheaper than in most places.

What external factors influence cost of living the most?

Many external factors influence a city's cost of living. A few that make the biggest impact include:

  • Housing costs
  • Interest rates
  • Inflation
  • Consumer confidence
  • Employment
  • Wages

What is the cost of living index?

Cost of living indexes allow future movers to compare the living expenses an average person can expect to pay to purchase housing, transportation, clothing, education, healthcare, childcare, and other essential goods and services in different cities.

What is the difference between standard of living and cost of living?

Cost of living describes the amount of money a person needs to maintain their ideal standard of living. Standard of living includes the necessities, luxuries, and comforts a person enjoys based on their desired lifestyle.

Which states have the lowest cost of living?

The following states have the lowest cost of living in 2022:

Does cost of living ever go down?

One way to lower your cost of living is to reduce your standard of living. Reevaluate the necessities and luxuries you purchase regularly and spot opportunities where you can be more frugal. This can help reduce unnecessary cost of living expenses from your budget.

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Tristian Brown
Tristian Brown is a Senior Content Marketing Associate at Apartment List, where he manages high-quality content that helps modern renters find the perfect home. He brings an immense wealth of knowledge to the team, having earned a Bachelor of Arts in Marketing and European Management from the University of San Diego and EM Strasbourg Business School. Read More

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