How to Calculate Your Cost of Living

by Catherine Rein
(last updated April 24, 2009)

I recently relocated from Austin, Texas to Denver, Colorado. Part of the negotiation with my employer was around a Cost of Living Adjustment. Housing and other goods and services are more expensive in Denver compared to Austin. I researched the difference and proposed a percentage increase in my salary to relocate to Denver.

If you are looking to relocate, be sure to research the cost of living in both locations and negotiate for a cost of living adjustment, if needed. Follow these steps to learn more about calculating your cost of living:

  1. Find the City Where You Live. First you need to find the city where you live and look up the CPI for your location. The Consumer Price Index (CPI) is a measurement of a basket of goods and services. This number includes the amount you would normally spend on groceries, doctor visits and housing as well as other goods and services. It determined by the Bureau of Labor who surveys about 7,000 families from around the country on their spending habits and regular expenditures.
  2. The expenditures are grouped into major categories, including Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication and Other Goods and Services. Taxes directly related the purchase of goods and services are included. Other taxes, such as Social Security taxes, are not.
  3. Find Your Destination City. Then find the CPI for your destination city. This number reflects the basket of market goods and services for the new location.
  4. Calculate the Cost of Living Adjustment. The conversion factor calculation is simply the ratio of the two CPI figures. Conversion Factor = New Location CPI/Old Location CPI. You can also compare the differences between two years. Converted$=(Start Year$/StartYearCPI)*ConvertYear CPI. In general, a Cost of Living Adjustment is equal to the percentage increase in the Consumer Price Index. For example, if you are moving from Denver, Colorado to Baton Rouge, Louisiana you can maintain the same standard of living for 14.75% less salary.

Social Security also does an annual cost of living adjustment. If you or someone you love is on Social Security, they receive an annual adjustment that is reflected by the change in CPI. The latest COLA is 5.8 percent for Social Security benefits and for SSI payments. This change will be reflected in the 2008 December benefits, which are payable in January 2009.

Author Bio

Catherine Rein

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