Depending on where you live, you may be able to afford a different lifestyle or type of home. Cost of living can vary city by city, or even town by town. If you’re considering moving to a new place, it’s beneficial to find out what your money can get you there. A cost of living comparison may help determine what your life will look like in your new home compared to where you live now.
What is cost of living?
In short, cost of living is how much money it takes to live somewhere. This means your mortgage or rent, food, healthcare, taxes and anything else that’s required to live in a given place. Cost of living usually goes hand in hand with wages. In a city like San Francisco, the salaries will usually be higher than a city in the Midwest, for example, because it costs more to live there.
What is a cost of living comparison?
A cost of living comparison is the act of comparing the cost of living in one place to another. This can help you plan and project what the money you’re making now can get you elsewhere. If you’re living in a city like New York, for example, moving outside of Manhattan may help you find an area with a lower cost of living so you can buy a bigger property or use your extra funds to save for a house down the line.
What to consider when doing a cost of living comparison
This first thing to consider is what the average cost of living looks like in a given city. You can find this out by using a cost of living index. There are a few different indexes online, but all serve as a benchmark for comparison. Cost of living indexes combine the expenses of different aspects of living and combine them to create a standardized measure. You can use these measures to compare different places. For example, the national average would sit at 100 as a benchmark. Anything below this would be a lower cost of living and anything above would be a higher cost of living. You can use these numbers to compare cities.
The second thing to consider is cost of housing. Cost of housing is worked into cost of living indexes and will have the largest impact. Your housing expense will likely be the biggest single expense each month.
An important factor to consider when making a cost of living comparison is your yearly income, what it gets you where you live now and what it’ll get you in your new city or town. You can start by looking at the bigger picture, which is what the indexes can help with, but it helps to break it down even further by assessing what you want and need as an individual.
How to budget for your new city
Once you’ve considered how much it’ll cost to live in your new city and estimated how much it will be to secure housing, you can start looking at closer details. Hiring a financial advisor might be helpful here. For most people, it can be overwhelming tackling this on your own. If you do decide to come up with a budget, look at your spending habits. You can use various online services to budget for certain elements of your lifestyle. For example, leaving $600 a month for food expenses aside, and $100 a month for coffee or tea if that’s a daily habit.
How cost of living may impact your mortgage
Cost of living may impact your mortgage because certain places are simply more expensive than others. If you’re looking at a three bed, three bath in New York and a three bed, three bath in Pittsburgh, it’s almost guaranteed to be more expensive in New York City. This means your monthly mortgage payments will be higher than if you were to buy the same size home in Pittsburgh. If you make the same income, your interest rates may vary city by city as well since this might affect how much you can afford to put towards your down payment.
As you can see, cost of living can have a trickledown effect in many areas. It’s helpful to get a head start on your cost of living to prepare for a move and strategize finances ahead of time.