Cost of living is a term used to describe the basic expenses of life that pay for everyday household needs. There are several estimates that have been made and different companies that have come out with their own cost of living indexes but these are all just estimated when it comes to you calculating out your personal household budget.
A cost of living index can be a useful launching point to help you get an idea of where to begin with budgeting your everyday costs and how much you can afford for certain items such as housing. It is a great idea to consider the cost of living if you are relocating to a new area from where you currently live. Living comfortably in one area may come to surprise you when you relocate to a completely new area where the cost of everyday goods is much more expensive.
How to calculate your personal cost of living
Analyzing your finances
The best place to start with calculating your cost of living is to examine your budget. Start by adding up all of your monthly fixed expenses such as mortgage or rent, groceries, gas, car payment, credit cards, etc. It is also a good idea to include the occasional mandatory purchases such as new car tires. When you add all of these items together you will have arrived at your personal cost of living.
Consider the help of a cost-of-living calculator
Cost of living calculators can be a very helpful tool to help you add up all of the individual expenses you need for everyday life. Some of these have their own set of expenses listed out already that you may forget or not even consider as a cost of living to help you budget for a comfortable lifestyle where you are not needing to spend more than you bring in.
What is nice about these calculator tools is that you can also use them to adjust the cost of goods between different states and cities as well as metropolitan areas.
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Estimating the new cost of living when relocating
Comparing the cost of living between two different locations can help you to get a sense of what your financial needs will look like in each area. So, if you are using a cost calculator tool from the federal reserve bank you could discover what your current cost of living is now and what you may need to make when you move to your new location to sustain the same standard of living.
In addition to considering your daily expenses and what they would cost you also want to make sure that there are plenty of job opportunities in your new area to be able to make the amount of money, you hope to make to sustain your lifestyle or live a better one.
In some cases, if you are being relocated because of your job you may look into these numbers and ask your employer to consider a cost of living adjustment.
