Cost of living
The amount of money needed to cover basic expenses such as housing, food, transportation, health care and taxes in a given place.
What it means
Cost of living describes how much it takes to maintain a typical standard of living in a particular area. Housing is usually the biggest driver of differences between places, followed by taxes, transportation, child care, health care and everyday goods.
Cost-of-living comparisons are often expressed as an index, where a national average is set at 100 and a city at 120 is about 20% more expensive. Cost of living also changes over time with inflation, which is why some wages, pensions and Social Security benefits receive cost-of-living adjustments (COLAs).
Example
Suppose you earn $60,000 in a city with an index of 100 and move to one with an index of 120. To keep the same standard of living, you would need roughly $72,000, since $60,000 × 1.20 = $72,000.
How it’s used
- Comparing job offers or salaries in different cities
- Deciding where to live or retire
- Understanding annual cost-of-living raises and benefit adjustments
Good to know
- Index comparisons are averages; your own costs depend on your housing, commute and household size.
See it in the data: Then-and-now prices for everyday items →
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Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.