How Cost of Living Is Determined in Your Region

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Where is your dream place to live? Are you imagining somewhere tropical? Somewhere urban? Somewhere rural and mountainous? Before you get too excited about the prospect of living elsewhere, it’s important to consider the cost of living in any given location. It’s often going to cost more to live in tropical and urban areas than it is in rural areas.

But cost of living is more nuanced than that, which is why we have tools like cost of living calculators to help us make decisions before taking new jobs or making big moves. Here’s a look at how cost of living is calculated and how it can be interpreted.

What Is Cost of Living?

In simple terms, cost of living is the difference in how much products and services cost across different cities and regions. You can find many different cost of living indexes, and each will have its own methodology. But each cost of living index seeks to express how much common goods cost in one area. These usually include housing, food, healthcare, utilities, clothing, education, entertainment and more.

A salary of $50,000 will go a lot farther in a place like Louisville (with a low cost of living) than it will in a place like Los Angeles (with a high cost of living). Salaries and other compensation in high-cost-of-living-areas tend to be higher than those in low-cost-of-living-areas.

How Cost of Living Is Calculated

Most cost of living indexes use what’s known as a “basket of consumer goods.” These indexes track how much a collection of common goods costs at any given time. The types of goods in a basket change over time to reflect shifts in consumer behavior. The cost of a basket of goods in one location can be compared to that same basket in another location — which highlights differences in cost of living.

The County’s Most Affordable Places

It’s probably no surprise that the most expensive places to live in the United States are large urban areas like New York City, San Francisco and Washington, D.C. But what are the most affordable places?

Topping the list of most affordable places to live in the United States among the largest 100 cities is Des Moines, Iowa, where less than 25% of income is spent on living expenses. Other affordable places to live include Omaha, Indianapolis, Grand Rapids and Fayetteville, Arkansas.

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