September 29, 2023 7:12 pm
September 29, 2023 7:12 pm

Navigating Cost of Living Calculators for Smarter Decisions

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I’ve used dozens of different cost of living calculators when researching where to live and they typically follow a similar framework. These calculators take a grouping, aka basket, of different goods and services and determines what this group of goods and services would cost in different cities. These calculators attempt to answer a question about the cost differences between cities, specifically: What would have to be true about my income if I moved from place A to place B? The methodology used, however, makes common assumptions that readers might be unaware of. In this post I’ll explore some of these assumptions and then detail the process I used to think through my family’s move out to the West Coast.

The typical home in Brooklyn doesn’t look like the typical home in Dallas

One of the biggest drivers of household expenses are shelter costs. Whether through rent or a mortgage, a family is likely to shell out a between a fifth and a third of their gross income on housing and cost of living calculators appropriately include shelter as one of the biggest expenses in a household budget. Most calculators I’ve seen take either an average or a median for rental costs and housing prices. In theory comparing the average home price in one city sounds like a decent measure of price levels. However, the housing stock is likely to be different between cities which will affect our ability to meaningful connections. For example, we might expect to see the average house in a densely populated city like New York is smaller than the average home in Dallas. Furthermore, the housing stock to some extent may not be comparable. Some areas of the country are more like Oklahoma City where single family homes dominate the landscape while other areas like the greater SF Bay Area have an abundance of townhomes for sale. For someone looking at moving from OKC to San Francisco the calculator might only look at the how the average cost of 3BR/2BA home varies between the two cities. However, someone moving to SF has more options than just paying a higher price or getting less square footage. Unlike in a market like OKC where there are very few townhomes available, there is an abundance in SF.

Take a look at these images from Zillow showing townhomes for sale in the Oklahoma City and San Francisco metro areas. Oklahoma City is a smaller metro with lots of developable flat land and much of the new and existing residential development is low density housing with lot sizes of a quarter acre or more. If one were to move from OKC to SF, they might be surprised to find that even though a similarly sized house and yard is significantly more expensive in SF, there are several townhomes with the same square footage they desired within their budget.

Cost of living calculators might assume you’re spending habits don’t change when prices change

A cost of living calculator typically uses a static basket of goods to show how price levels vary across cities. This approach is helpful for comparing cost of living, but it falls short when trying to envision your lifestyle in a new city. It only answers a simple question: What income do I need to spend in the same way there? What it doesn’t account for is how your spending habits might change if prices of some goods rose while others remained constant. Consider a potential move where your dining costs increase by 50% as a result of moving to a HCOL city. You might determine that you’ll continue to dine out 4x per week and fight and claw for a slary that allows you to do so. Alternatively, you might also be happy to dine out 1-2x per week if it meant working a in a particular city or for a particular employer.

The goods and services the calculator uses may differ from your preferences

When using cost of living calculators that rely on fixed percentages assigned to spending categories, it’s important to consider that these categories may not align with your own interests and priorities. For instance, let’s consider Grace, who is contemplating a move from Milwaukee to New York and wants to assess the impact on her quality of life. If a calculator assigns a 30% weight to entertainment, it may indicate that living in NYC is 70% more expensive. However, this increase is largely driven by higher costs associated with sports games, clubs, and similar venues in the city. However, if Grace primarily enjoys low-budget activities like painting and reading, which make up most of her recreational time, her personal budget might allocate only 10% to entertainment. If Grace fails to account for these differences between the calculator’s assumptions and her actual spending patterns, she might mistakenly believe that she needs a significantly larger salary to afford living in the Big Apple. This principle applies to any category where your personal budget deviates from the calculator’s assumptions.

Only you can determine your preferences

When it comes to determining your satisfaction with a specific location, the crucial factor isn’t simply a number generated by a computer. It’s the personal significance you assign to various aspects. For instance, if someone despises heat and humidity, no amount of money would make living in Florida appealing. Despite potential benefits like tax savings, affordable housing, and plentiful sunshine, the oppressive humidity that makes life miserable for half the year outweighs these advantages. Ultimately, a person’s preferences hold more importance than any figure produced by a calculator.

Process I used when considering moving to California

As I transitioned from the military to college and then entered the workforce, my primary concern was maintaining financial independence. Therefore, cost of living calculators played a significant role in my decision-making when considering a job offer in Wisconsin after graduating. The company offered a salary of $64,000, which would have been considered respectable for a new graduate in Washington, D.C., where I completed my studies. However, in Wisconsin, where housing and dining costs are much lower, this salary would allow me to save easily and afford expensive trips, such as skiing in Colorado. The cost of living calculator provided a useful estimate of how the quality of life in Wisconsin would compare to the offers I received in the D.C. metro area.

A few years later, when my partner and I were contemplating our ideal place to live, I approached the decision-making process differently. Initially, I filtered our options by considering metropolitan areas with a population of at least two million, then eliminated any locations with hotter summers than what we experienced in D.C. To assess summer temperatures, I relied on Bert Sperling’s rankings, which consider factors like temperature highs, lows, and humidity.

After eliminating cities based on size and summer climate, we were left with approximately 20 metros to further evaluate. At this stage, we drew upon our personal experiences from living in different states as a starting point. Additionally, I consulted city rankings that placed less emphasis on costs and focused more on factors like career opportunities, healthcare services, transportation, and other relevant aspects. By initially ranking cities based on desirability, we separated the feasibility aspect and avoided prematurely dismissing potential options. Two rankings I found helpful during this phase were and Eventually, we narrowed down our list to a handful of metros for further consideration, including the SF Bay Area, Seattle, Boston, Chicago, and D.C.

Only after narrowing our options to this select group did I utilize a cost of living calculator. At this point, the calculator proved valuable in understanding the cost disparities across various categories such as housing, transportation, utilities, and more. Alongside cost of living calculators, I utilized resources like Zillow to gain insights into the local housing market, Google Maps to explore the city layout and available amenities, employment reports for business schools to evaluate job prospects for graduates, and Weather Spark to gain a comprehensive understanding of the climate differences. Gathering all this new information gave me confidence in my decision to take the risk of moving across the country to one of the most expensive areas in the United States, even with an infant.

In Summary

Cost of living calculators are valuable for answering questions around how price levels vary from one city to another. When using these calculators, it’s prudent to understand the calculation methodology including potential deficiencies in data collection, benchmarks, or category weights. Ultimately these calculators are just one tool of many for answering questions about where to live. In fact, I’ve found them most useful as a supplemental tool during the final stages of my research on where to live.

Readers, are there any limitations or assumptions in cost of living calculators that I have not considered? Are there additional scenarios in which a cost of living calculator may prove useful?

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