What is cost of living?
According to Investopedia, cost of living is ...
the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain place and time period.
As mentioned above, basic expenses may include housing (renting or buying), food, taxes (federal, states, sales, etc.), and healthcare. Some additional expenses may include transportation (public transportation versus private vehicle), insurances, utilities (electricity, water, sewage, and trash), and communication (cell phone and internet).
As pointed out in the definition above, cost of living is determined by location and time as well. The cost of living in New York City in sub-arctic temperatures will vary greatly from living in the rural Midwest in spring.
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Parents Should Teach Their Children About Cost of Living
I am a firm believer that children should learn from their parents. There are four common reasons why many financial lessons are not passed on from generation to generation.
- The older generation was not taught strong financial principles, and therefore do not know what should be passed on.
- The older generation failed to apply the principles they were taught, and they feel shame about how they handled money.
- There is a family culture that money is a private matter and should not be discussed openly.
- The younger generation does not believe that the "antiquated principles" still apply. Perhaps the financial vehicles have changed, but oftentimes the principles are very much applicable.
For me, I want to make sure that all conversations can be brought to the table, including financial ones. But that requires fostering a family culture of open and honest conversations. That might mean that I have to admit my mistakes. I can either protect my pride, or I can equip my children for their future.
How cost of living relates to salary?
Living in a city with a higher cost of living does not guarantee that you will have a larger salary. It just means that you need a higher salary to live comfortably.
When I lived overseas, I had many conversations with my English students about living in the United States. The following is a paraphrase of a conversation I had with numerous college-aged young adults who wanted to continue their studies overseas.
Student: I want to study abroad in the United States.
Me: That is great. Where you want to study?
Student: I want to study in ____. (insert any large, well-known city here.)
Me: Did you know that it usually costs more to live in bigger cities in the United States?
Student: Really. Everything should be OK. I am receiving a living stipend for my scholarship.
Me: I am excited for you.
Student: And I plan to send all of the extra money I don't use to help my family back home.
All of my students focused on (potentially) higher salaries. They always forget to consider the proportionately higher expenses.
I repeated this time and time:
When your salary increases, your expenses usually follow.
There are several reasons why expenses are higher in larger cities.
- higher rent/mortgage - it cost more to rent or buy a house because housing options are limited
- higher costs to store goods - it cost more to buy something because the space to store that item is higher
- transportation costs - additional expenses are added due to transporting goods to urban centers
- higher city - costs increase due to local city taxation on goods and services
- perception of value - goods costs more in certain areas or parts of town due to the perception of value based on where the item was purchased
- minimum wages - companies pass on the increased expense of paying their workers by increasing the price of their products and services.
- temptation tax - this is a concept that I made up - the cost of living is higher because the items you are 'tempted' to purchase are more readily available - the cost and effort you would have to make to purchase the same item in a rural area are much higher, and therefore may deter the purchase
Dreaming Big
I want my kiddos to do whatever they want to do in life. Lessons about the cost of living are not intended to prevent one of my kiddos from moving to New York or Los Angeles. More than anything, discussion regarding the cost of living is meant to prepare my children for their future goals and dreams.
I saw many of my international friends be accepted to study abroad when I lived overseas. It was an important moment in each of their lives, and it was satisfying to think that I might have played a small role in their journey.
Their dreams were coming true, but they did not yet understand the nuances of their new reality. As a friend and mentor, I wanted to prepare my friends to be best equipped for their new adventure. Sometimes that meant deconstructing misconceptions about what life would be like overseas. There were many misconceptions. Until we have lived outside of our own culture, we can only frame what life might look like based on what it has always looked like.
Many of my friends dreamed of a future with high-paying salaries, but they did not have the life experience required to understand the costs of reaching those dreams.
My Cost Of Living Journey
When my family and I lived overseas, we were well provided for. I worked for an organization that paid many of my expenses. My salary was competitive. We lived in a city where the cost of living was relatively low, and we were not tempted to buy a lot of export goods because they were not readily available.
Once we returned back to the United States, I struggled to find a job with a comparable salary and benefits package. Not only was I responsible for covering more expenses, the total cost of those expenses was also much higher in the United States.
None of this information surprised me. I knew that I would have to make adjustments as I experienced changes to my salary and expenses. As a parent, a mentor, and a friend, I want to make sure that other people (especially my children) are equipped to make changes in their lives. Moving to a new city is a great adventure, but it comes with unique challenges as well.
What does ____ cost where I live?
I stumbled across a website called Numbero.com. Numbeo describes itself as ...
the world’s largest cost of living database. Numbeo is also a crowd-sourced global database of quality of life information including housing indicators, perceived crime rates, and quality of healthcare, among many other statistics.
I pulled the following stats from the Numbeo website. If you would like to learn about prices near me, click here.
Summary about cost of living in Springfield, MO, United States:
- Family of four estimated monthly costs are 2,848.25$ without rent (using our estimator).
- A single person estimated monthly costs are 825.18$ without rent.
- Springfield is 41.16% less expensive than New York (without rent, see our cost of living index).
- Rent in Springfield is, on average, 79.40% lower than in New York. source
Market Items
| Item | Price in USD |
|---|---|
| Milk (regular), (1 gallon) | 3.16 |
| Loaf of Fresh White Bread (1 lb) | 1.79 |
| Rice (white), (1 lb) | 1.06 |
| Eggs (regular) (12) | 1.36 |
| Local Cheese (1 lb) | 3.60 |
| Chicken Fillets (1 lb) | 2.56 |
| Beef Round (1 lb) (or Equivalent Back Leg Red Meat) | 4.35 |
| Apples (1 lb) | 1.30 |
| Banana (1 lb) | 0.68 |
| Oranges (1 lb) | 1.54 |
| Tomato (1 lb) | 1.57 |
| Potato (1 lb) | 0.79 |
| Onion (1 lb) | 1.05 |
| Lettuce (1 head) | 1.60 |
| Water (1.5 liter bottle) | 0.95 |
| Bottle of Wine (Mid-Range) | 9.00 |
| Domestic Beer (0.5 liter bottle) | 2.25 |
| Imported Beer (12 oz small bottle) | 3.00 |
| Cigarettes 20 Pack (Marlboro) | 4.75 |
Utilities
| Item | Price in USD |
|---|---|
| Basic (Electricity, Heating, Cooling, Water, Garbage) for 915 sq ft Apartment | 194.98 |
| 1 min. of Prepaid Mobile Tariff Local (No Discounts or Plans) | 0.30 |
| Internet (60 Mbps or More, Unlimited Data, Cable/ADSL) | 61.71 |
Rent
| Item | Price in USD |
|---|---|
| Apartment (1 bedroom) in City Centre | 596.43 |
| Apartment (1 bedroom) Outside of Centre | 621.43 |
| Apartment (3 bedrooms) in City Centre | 941.67 |
| Apartment (3 bedrooms) Outside of Centre | 928.57 |
Final Thoughts
Every decision we make is greeted with consequences. Moving to a big city may allow you to enjoy the nightlife, but it may also require you to pay higher rent and sales tax.
Living out in the middle of nowhere may be comparably inexpensive, but you may not have access to the goods and services you may want.
Life is about making decisions, and cost of living is an important factor to consider when choosing where you want to live and what kind of job you want to have.
Don't stop dreaming! Just make sure you know as many factors are possible as you dream.
Thanks for stopping by!
@Sumatranate
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Read how this all have started with Toruk
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@onealfa.leo - Thank you for your generous support. It means a lot!
Thank you for this post.
I live in California, and often when talking about money on this platform, I have to remind myself that just because my family and I bring 6 figures home, does not mean ultimate comfort.
I will check out the linked site.
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Thanks for stopping and adding a comment. A 6 figure income would be incredible where I live. That would mean the ability to save more, invest more, and spend more on "wants."
I can not imagine how expensive it is to live in CA. And in addition to the increased costs of normal expenses, I bet taxes eat away more of your income as well.
The thing is that I grew up in California, so I am kind of numb to things like takes (lol, I meant taxes but that's a great typo so I'll leave it).
It is crazy to people, but I really don't mind paying them. I spent a lot of time in Mexico growing up, Tijuana to be specific. I loved having services like 911, water that never ran out, electricity that very rarely went out, emergency rooms, trash services ETC ETC ETC - because I grew up seeing first hand what it was like to live without them. I know other people figure out how to do it more cheaply than it is done in California.
But California <3 <3 <3
It is really services that eat up at our income. Stuff that is not necessary (ballet, soccer, baseball, fundraisers,), but why raise your children being able to watch everyone around them have these things, but not be able to have them, themselves? That's what's expensive in California. I pay the same for ballet classes than cousins on the other side of the border, but my kids get 45 minutes of instruction vs, 5 hours.
I can absolutely not complain though. I recognize that I get to live in California, and send my kids to ballet. Its just hella expensive to do so.
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I really like the typo (takes versus taxes). I see your point of view about being willing to pay for having reliable services. I lived in Indonesia for more than 10 years. There were a lot of services that I would have been willing to pay extra for to guarantee reliability.
"Stuff that is not necessary" (but really fun) is what I was referring to as the "temptation tax." You have opportunities available because you live in a bigger city that may not be available for my kids. Larger cities attract experts, and experts charge higher fees!
I really appreciate your perspective and honesty. Thanks for stopping by.
!ENGAGE 25
ENGAGEtokens.This is a great jewel...
You explain it in detail and very easy to understand.
My parents talked to me very little about financial education and the one they gave me doesn't help me much, even though I live on my own with my wife and we live in a house that we are taking care of and we don't have to pay for anything.
I have seen how lately the cost of living in my country Venezuela has increased significantly since the dollar has taken over the economy.
Really the issue of how to manage finances should be taken seriously, because in 10 years we will have many young people with debts and an economy that will be destroyed much more.
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Thank you for your comment. I agree that parents need to teach their children about finances. I am sorry to hear that the lessons you were taught were not that helpful.
It is very challenging when the cost of living increases, especially when you have not moved to another city, but are just staying where you always lived.
I agree that managing money is important for current and future generations. If people do not learn how to manage money, they will always be in debt and that will harm them personally and the economy.
Thanks for stopping by!
Its really important to track your expenses so that you know how much you spend, because in tough times, you need to know what levers you can pull to get by.
I was also fascinated with how cheap everything is, I am guessing you are form USA? I'm from Australia, and our fruit and vegetables are about 10-30% higher in almost all categories.
An example would be tomatoes, which vary by season, but we pay around $4-5 per kg, if I convert this to pounds and USD, this comes to $1.75 per pound, versus the $1.54.
It got me wondering why? perhaps bigger population more efficiency and economy of scale? sorry I know this is off topic, but reading your article triggered me to think about it.
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I agree. If you don't know what you are spending your money on and how much you are spending, it is hard to make adjustments if tough times?
I am from the United States. I live in a part of the US called the Midwest, which typically has a lower cost of living than the coastal areas of the US. There are a lot of factors that influence prices.
It would be really challenging to pinpoint all the factors that would impact the price difference between where we live. Transportation cost, drought, strikes, etc are some of the factors that could cause the 10 to 30% price difference.
Thanks for stopping by!
It is a very common mistake for people to look for large cities because they pay higher salaries, but the truth is that although salaries are indeed higher, it does not compare with the higher cost of living in small cities, it is like they told you in I will pay you 20% more in big cities, but what they don't say is that living in that big city will cost you 30% or 40% more, great article, greetings
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So true! A big salary is like a tip of an iceberg. It is what everyone is looking at, but people forget that there is so much more to finances than just a salary. Expenses and debt (the part that is under the water) is what sinks the ship.
I am glad a friend helped point the way on living within my means. MY job paid well, yet controlling and planning my cost of living took almost 20 years to develop. I live in the suburbs of a city with high housing, Taxes, and transportation costs. Currently, my kids are filing their first Income Taxes. What a challenge.
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It is great that someone helped "point the way." I am glad to hear that.
Like a lot of things in life, we are either mentored or we stumble and fumble as we learn. You make a great point. Financial lessons often take years to practice and apply before they become normal.
My oldest is 13. I still have a couple more years before she files her first income tax, but now is the best time to get her prepared.
This is a great start treaching personal finance to the next generation may they be better skilled than we are.
Check out Next Gen Personal Finance, Tim Razetta started a non profit to solve this problem in a fun engaging way.
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I do hope that my children will become financially literate. I hope that they can exceed my knowledge in many things.
Thanks for the recommendation about Next Gen Personal Finance. I will check it out!
I would love to read about this if you decide to write about it.
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Totalmente de acuerdo el dinero debe ser discutido en casa con los hijos, establecer una educación financiera que de verdadera independencia y claridad de los gastos al crecer.. confieso me he tropezado cOm El costo del dia a dia, lo que se lo aprendi por ensayo y error y sigo en ese proceso
Translation of the above comment:
Thanks for your comment. Children who learn strong financial principles from their parents and are assisted in applying those principles are better off.
We all have stumbled in regards to financial matters. The key is learning from our mistakes and trying again.
I think personal finance should be part of the curriculum, it helps a lot. Though I am good with money but when I started working I have made mistakes with investment. Now I am on track but I realized very early whereas a lot of people do not realize it until they are broke.
Now Cost of living varies a lot based on the city you are in though that is mainly on rent, other than that I guess everything is similar.
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I think that curriculum can play a role in the learning process, but I hope that my wife and I do a good job of addressing these issues (especially as an example and in everyday conversations).
We all make mistakes. That is part of the learning process. I am glad to hear that you are back on track! Good for you.
From the conversation you shared this common intention of the students to earn more. it is important to focus on the expenses. the data you have given on the daily commodity items is is about 1.8 Times in the price in Bangladesh. this is what city to city country to country the cost of living the differs. the next generation should have the knowledge of this cost first then they should think about the income and we need to educate them. thank you very much for coming up with this nice topic.
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Thanks for sharing stats related to the cost of living in Bangladesh. You are correct. I completely agree that cost of living varies greatly from city to city and country to country. We need to help the next generation learn this important idea.
I did not come up with this idea on my own. Check out this post regarding the topic idea: https://peakd.com/hive-174578/@ocd/ocd-community-boost-contest-6-highlighting-home-edders
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The minimum wage in my state is $9.45 an hour.
That equates to $378 per week, $1,512 every 4 weeks, and $19,656 every year. And it is important to remember that is the amount before taxes are taken out.
It is challenging to live making minimum wage. To make more money, oftentimes both parents work, one or more parents pick up a second job, and/or the family requests assistance from charities or the government.
You must plan well not for now but for the future as well
You might live in a big city well now, but what next?
I liked your article very much
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Very true. It is important to think about what is happening now and what might happen in the future. That is why important to invest some of the money you make so that you can have more income in the future.
This is so revealing; a lot of people focus on potential difference in how much they'll earn forgeting that cost of living and other things will come in play.
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You never know how much of a salary you need if you don't calculate your expenses. You are correct! People need to consider both when developing a financial plan.