About Cost
of Living
People use the concept of the cost of living to make decisions about where to live or when to buy a house. But what exactly is cost of living? And how can you use figures about cost of living to make wise financial decisions? Read on to find out about cost of living and how you can apply it to your personal finances.
Identification
"Cost of living" describes the amount of money it costs to cover basic necessary expenditures such as food, shelter, taxes and fuel. Statisticians compile numbers to describe the cost of living in a given area. Therefore, the cost of living in one area can be compared with the cost of living in another area in order to make decisions about where to live.
History
Of course, there has always been a cost to living, and historians have been able to figure out the cost of living in former times. But the Consumer Price Index, which the United States government uses to calculate cost of living, has only been tracked since 1800. From 1800 until 1912, the Consumer Price Index (CPI) was calculated annually, but in 1913, the United States began tracking the CPI monthly.
Significance
The significance of "cost of living" or the CPI is that people can find out how much it would cost to live in any given area. This affects where businesses get established, what kind of lifestyle you can afford and where people want to retire. Young people and the retired are often drawn to places with a lower cost of living.
Warning
Magazines and newspapers often rank cities by their cost of living indexes. It's easy to judge cities based on these numbers and rankings, but numbers cannot tell everything about a city. Remember that cost of living only indicates basic expenditures such as housing, fuel, food and taxes. There is much more to a locale than just the cost of living.
Benefits
Cost of living calculators are available online (see Resources below). This type of calculator is especially useful when you are moving. Some calculators will tell you how much you will have to earn to maintain the same lifestyle in another city that you are accustomed to now.
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