What Does ‘Cost of Living’ Really Mean and Why Does it Vary By State?

During the COVID-1 9 pandemic, many people began work remotely for the first time. Many people are starting to return to office occupations, but others are continuing to work remotely. Without being tied down to a physical agency spot, we are seeing people move to different locations in different regions of the country. If you’ve lived most of your life in one location, you might be surprised to find that costs vary in different states and municipalities.

What is Cost of Living?

Cost of living is defined as the total amount of money that is needed to live in a particular area. One space that cost of living can be measured as either a raw monthly or annual sum. Another mode that you will often understand cost of living measured is as a cost of living index. The Council for Community and Economic Research( CCER) has compiled, issued and studied cost of living information at the local level since 1968.

Typically a cost of living index takes the average cost of living across the whole nation and specifies that as a baseline of 100. Then states or metropolitan areas where the cost of living is higher than the national average have numbers greater than 100, and those with a lower cost of living have an index of less than 100. This allows you to easily compare the cost of living in different locales. If you live in an area with a cost of living index of 109, then you know that your cost of living is approximately 9% greater than “the member states national” average.

What Makes Up the Cost of Living Formula?

There are a variety of different companies and organizations that calculate the cost of living in different locations, and each one uses a slightly different cost of living formula. As one example, the U.S. Bureau of Labor Statistics publishes the Consumer Price Index( CPI ). The CPI is used by the government to determine things like the cost-of-living adjustment for Social Security.

BLS calculates CPI indexes for the following categories in addition to an overall index 😛 TAGEND

Food( both at home and away from home) Energy( gasoline, fuel oil, electricity and natural gas) New and Used vehicles Apparel Medical Care Shelter/ Housing Transportation services

Prices for each of these areas varies from month to month and in each different nation and community.

Why Does Cost of Living Vary By State?

If you’ve ever traveled to or lived in different parts of the United States, you may have noticed that costs often alter as you go to different regions. There are a variety of different reasons why cost of living varies by state and even within a devoted country. One major reason for differences in cost of living is how rural or urban an field is. Generally speaking, cities and urban areas have a higher cost of living than rural areas.

Cost of living of specific merchandises can vary with other factors as well. How close a state or metropolitan area is to various national resources can also play a factor. If you live in an area with access to oil or natural gas, it stands to reason that your energy costs might be lower than other areas. Similarly, being a little bit closer to farms and other food production can maintain an area’s food expenditures lower. State and neighbourhood taxation policy also contribute to the overall cost of living.

Which Government Have the Lowest Cost of Living?

The cost of living by government varies depending on the year and also on the methodology used to calculate the cost of living. According to the 2020 fourth-quarter Cost of Living Index report from CCER, the ten governments with the lowest cost of living are 😛 TAGEND

Mississippi Kansas Oklahoma Alabama Arkansas Georgia Tennessee Missouri Michigan Indiana

Keep in thinker that these are just average costs of living for an entire state and the cost of living will vary greatly within a state. Cost of living in rural Albany, Georgia will be much less than living in metro Atlanta. Another thing to consider is that your income may be lower in areas with a lower cost of living, though that may not be as much of a factor if you have a remote job.

The Bottom Line

A state or metropolitan area’s cost of living is defined as the cost it takes to live in that particular spot. A cost of living index is a way to normalize and compare the cost of living between different areas. A cost of living index of 100 represents the national average. Higher numbers are more expensive and lower amounts are less expensive. There are several companies and organizations that calculate cost of living indexes, and each employ somewhat different formulas and prices. Moving from a high cost of living area to one with a lower cost of living is a smart way to attain your money go further without increasing your income.

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