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