Do you find yourself treading water financially even with a relatively healthy household income? Even with your new higher-paying job and your spouse’s promotion, do you still find it difficult to get ahead, despite carefully counting your pennies? Does your friend or relative halfway across the country have a better quality of life on less income? If so, the cost of living might be to blame.
The cost of living refers to the cost of various items necessary in everyday life. It includes things like housing, transportation, food, utilities, health care and taxes.
Singles, couples, and families typically have many of the same expenses – everyone needs shelter, food and clothing, for example – but families with children pay more in most categories and might have the added expenses of child care and tuition.
The Economic Policy Institute (epi.org) has a family budget calculator that lets you enter your household size (up to two adults and four children) along with your ZIP code to see how much you would need to earn to have an “adequate but modest” standard of living in any geographic area.
What areas have the highest cost of living? It’s no secret that the East and West Coasts have some of the highest costs. According to the Council for Community and Economic Research, the most expensive U.S. urban area to live in last year was New York City, followed by Honolulu; San Francisco; Brooklyn, New York; and Orange County, California.
When it comes to ranking by state, Rhode Island has the ninth-highest cost of living, while Massachusetts is fifth.
Factors that influence the cost of living
Let’s look in more detail at some of the common factors that make up the cost of living.
Housing: When an area is described as having “a high cost of living,” it usually refers to housing costs. Looking to relocate to the Silicon Valley from the Midwest? You better hope for a big raise; the mortgage you’re paying now on your modest three-bedroom home might get you a walk-in closet in this technology hub, where house prices last spring climbed to a record-high $905,000 in Santa Clara County, $1,194,500 in San Mateo County and $690,000 in Alameda County, according to the San Jose Mercury News.
Student loan debt, while not tied to the cost of living, plays a role in housing affordability. Student debt, both for borrowers and co-signers, such as parents, is increasingly affecting housing choices and living situations. For some borrowers, monthly student loan payments can approximate a second mortgage.
Transportation: Do you have access to reliable public transportation or do you need a car? Younger adults often favor public transportation and supplement with such services as Uber, Lyft, and Zipcar. But for others, a car (or two or three), along with related costs such as gas, insurance, taxes and maintenance, is a necessity. How far is your work commute? Do you drive 100 miles round-trip every day or do you telecommute? Needing to buy a new (or used) car every few years can significantly impact your bottom line.
Utilities: The cost of utilities varies by location, weather, usage and infrastructure. For example, people who live in colder climates might pay more to heat their homes in the winter than residents of warmer climates do to cool their homes in the summer.
Taxes: Your tax bite will vary by state. Seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, property taxes and sales taxes vary significantly by state – and even by county – and states have different rules for taxing Social Security and pension income.
Miscellaneous: If you have children, other things that can affect your bottom line are the costs of child care, extracurricular activities and tuition.
To move or not to move
Remember The Clash song “Should I Stay or Should I Go?” Well, there’s no question your money will go further in some places than in others. If you’re thinking of moving to a new location, cost-of-living information can make your decision more grounded in financial reality.
There are several online cost-of-living calculators that let you compare your current location to a new location. The U.S. State Department has compiled a list of resources on its website, at http://www.state.gov/m/fsi/tc/79700.htm.
BARBARA KENERSON is first vice president/Investments at Janney Montgomery Scott LLC and can be reached at BarbaraKenerson.com.