Learn what a cost of living calculator measures and how it works.
A "cost of living" figure compares how much it costs to live in different parts of the world. For example, New York has the highest cost of living in the United States, coming in at 15th in the global city rankings, according to a 2007 report published by Mercer Human Resource Consulting. The report lists Moscow as the most expensive city in the world for expatriates. The Cost of Living indicates that goods and services actually cost more in these locations than in other locations, based on their prices in various currencies worldwide.
Many Web sites offer cost of living calculators to help people plan trips or move to other cities, as they show how much travelers and expatriates would have to earn in the new city to live as they were accustomed to in their previous home.
Though no Internet cost of living calculator has been proven to be more effective than any other, one example is the calculator provided by Sperling’s BestPlaces. By entering in two cities in the United States, users can determine how their costs of living compare to one another and where they stack up against the national average.
Like many cost of living calculators, Sperling’s BestPlaces uses data from the Consumer Price Index, provided by the U.S. government’s Bureau of Labor Statistics. The index provides a look at how prices change between places and dates by examining the prices of a group of representative goods and services from a certain location or time period. The data can be weighted and tallied to form a cost of living score, the average of which is 100. The score is divided up into six major categories: housing, food and groceries, transportation, utilities, health care and miscellaneous items.
The housing category is the largest share of the cost of living calculator, with 30 percent of the final score. It represents the average cost of housing in the area, which includes mortgage payments, property tax and property rents. Food and groceries make up 15 percent of the calculator, not including the price of food at restaurants. Transportation is 10 percent, and is made up of the average cost of gasoline, car insurance and maintenance expenses in the given area, as well as the average mass transit fare. Costs of vehicles and any vehicle services are not calculated in this metric.
Utilities are 6 percent of the measurement and are calculated by adding the costs of heating and cooling a home in the area, including the costs of electricity and natural gas. Health care, 7 percent of the metric, is represented by the average standard daily rate for a hospital room, as well as the costs of a doctor's office visit and a dental checkup. Miscellaneous items make up the rest of the cost of living value, 32 percent, and include everything not covered in the other categories, such as clothing, entertainment, restaurants, repairs and other services.
All tolled, the costs of these six factors add up approximately to a total budget that varies by city. For example, Los Angeles is about 22 percent more expensive than Boston, so if you were to move from Boston to LA, you’d have to earn about 22 percent more to maintain the same spending habits.