What is 'Cost of Living'
Cost of living is the amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes and health care. Cost of living is often used to compare how expensive it is to live in one city versus another locale. Cost of living is tied to wages, as salary levels are measured against expenses required to maintain a basic standard of living throughout specific geographic regions.
BREAKING DOWN 'Cost of Living'Cost of living can be a significant factor in personal wealth accumulation, because a smaller salary can go further in a city where it doesn't cost a lot to get by, while a large salary can seem insufficient in an expensive city. According to Mercer's 2015 Cost of Living Survey, cities with the highest cost of living standards included Tokyo, Osaka, Moscow, Geneva, Hong Kong, Zurich, Copenhagen and New York City. U.S. cities with a high cost of living as of 2015 included Honolulu, Los Angeles, Washington and San Francisco.
Cost of Living Index
A cost of living index compares the cost of living in a major city as compared to a corresponding metropolitan area. The index incorporates the expense of various components that comprise basic human needs, creating an aggregate measure to which new entrants into the workforce may refer. As college graduates weigh employment alternatives and currently employed job seekers consider relocation, the index provides an informative snapshot of rental, transportation and grocery costs.
In 2016, using New York City as a benchmark for other U.S. cities, San Francisco maintains the highest cost of living in the Americas. Rental costs in San Francisco are about 3% higher than in New York, and food prices sit 22% above corresponding levels found in New York. By contrast, the citizens of Reno, Nevada enjoy a cost of living approximately 43% below that of New York residents when analyzing basic expenses on an aggregate basis.
Cost of Living and Wages
For a family with two adults and two children, the average cost of living in the United States hovered around $65,000 per year in 2015. The figure excludes discretionary spending on nonessential goods and services, such as leisure, entertainment and luxury items.
The debate over raising the U.S. federal minimum wage is deeply rooted in the disparity between the lowest wage allowed by law and the earnings needed to maintain an adequate cost of living. Proponents of a minimum wage hike cite increased worker productivity levels since 1968 as inequitably correlated to the minimum hourly rate of pay in 2012. As the minimum wage once tracked the increase in productivity, the divergence between earnings and worker efficiency have reached historically disproportionate levels. By contrast, opponents of a minimum wage increase contend that a raise could spur higher consumer prices as employers offset rising labor costs.
Life gets expensive, and sometimes everyday costs can add up to a lot of money. Between utilities, groceries, child care, and other expenses, Americans face a lot of bills. Luckily, there are many ways you can save on your regular costs.
One easy way to save money is to stick to a budget. Only about one third of Americans budget monthly, and of those who do, many go over most months. If you are able to carefully plan for your necessary expenses and stay on target, you will be better about saving money. You can also save money by conserving energy, being smart about your trips to the grocery store, making wise child care decisions, and also by making many items at home that you would normally purchase at the store. By making smart choices, you can save money regularly, which will reduce your everyday cost of living. Read on to see five easy ways to save money regularly.
1. Conserve, conserve, conserve
Utility bills can be very expensive, particularly if you have a large home or a big family. Even people who live in a small apartment or home can feel the burn of a high utility bill. Lucky, there are basic changes you can make that will add up to big savings quickly. The most obvious change is to turn things off when you’re not using them. Turn your lights off when you are not home or out of the room. As nice as a warmly-lit home is, a fat wallet is even nicer.
Turn the radio and TV off when you are not listening to them, or set a sleep timer if you often fall asleep to an electronic device. The same goes for water; turn the water off when you are brushing your teeth, and turn it back on when you are ready to rinse. If you are doing dishes, only use the water you need. Lastly, if you work during the day, program your thermostat so that the heat or AC is lower during the day when you don’t really need it.
2. Plan your grocery trips
We’ve all heard the tip, don’t go grocery shopping while you’re hungry. Another good tip is to never go grocery shopping without a list, because you will spend more money. Plan your meals ahead of time, and also take an inventory of all the food you need to stock up on. Use coupons if you can — even if you don’t have time to check every circular. If you shop at a particular store regularly, planning your meals around what is on sale for a particular week will save you money.
It will also save you by eating in season, because vegetables and fruits that are in season are more affordable. Lastly, consider purchasing items that you regularly use in bulk: this can mean purchasing at a bulk store like Sam’s Club or Costco, or simply buying multiples of something that stays good when it goes on sale at your regular grocery store.
3. Save on child care
Children are cute, but let’s face it, they’re also expensive. If you work full-time, you likely see much of your paycheck go towards child care. Even if you stay at home or work part-time, you will need a babysitter sometimes, and sitters can be costly as well. As expensive as child care is, there are many ways you can save on it. If you have family who can help, you may be able to pay less. Or if you have a friend or neighbor who offers care in their home, you can consider that; usually in-home daycare centers cost less. If you have friends with kids, creating a babysitting co-op can be a great way to have some time out without paying for it.
If you regularly go to a gym, look for one where child care is part of the membership fee. Many gyms now offer free child care with a family membership. You should ask about the training and certifications that your gym requires of their child care workers, but if you feel comfortable, you can have good child care as well as a workout.
4. Make it yourself
If you have the time and energy, you can make many items yourself that you would normally purchase at the store. If you’re short on time, try combining activities: make something while you watch your favorite show. There are many items you can easily make at home to save money. Making baby items at home can be especially cost effective; baby wipes, burp cloths, and baby food are fairly easy to make and will save you money.
Many household convenience items can also be made at home. Soap is pretty easy to make at home, as are cleaning supplies and even some foods that you would normally buy at the store (like granola bars, marinera sauce, breads, and so on.) Homemade gifts will also save you money, and may mean more to the person receiving the gift.
5. Stick to a budget
Saving money on everyday costs is great, but unless you have a solid budget, you will still face many months where you are overspending. Take the time to carefully review your bills, budget for unexpected bills and emergencies, and of course, budget for fun too. Try a budget template if you are new to budgeting. Certain habits can easily derail a budget, like eating out too often and accruing unnecessary fees by not paying attention to your credit card or bank fees.
If you already have a budget but you are having a hard time sticking to it, there are many ways you can get back on track. If you’ve had a change in income or bills, you need to update your budget; many people’s budgets suffer because they assume they can keep operating under the same budget even when circumstances change or prices go up. Plus, you need to make realistic expectations: if you budget too little, you won’t be able to stay on track, and you will get frustrated. If you budget too much, you won’t save as much as you should.
There are many ways that you can save money on everyday costs, but each money saving tip requires careful planning. So take the time to determine how you can turn off more lights, conserve more water, be more careful at the grocery store, save money on child care, make some items yourself at home, and most importantly, stay on budget.
While looking for ways to reduce your everyday costs is important, it is equally critical to keep a tab on your spending trends. Last week, we had looked at some of the best personal finance apps out there to help people develop financial responsibility. Below is a recap of some of the best tools we found:
1. If you need an app for budgeting and keeping track of accounts
Mint.com has a collection of helpful personal finance apps. The company’s iPhone app was named the Best Finance App by App Awards and included in Time Magazine’s 50 Best iPhone Apps of 2011. The app makes it easy to track your finances and offers alerts for high spending. The app also allows users to check account details and update their budgets; it also updates the instant you enter in new purchases.
The app also is password protected, which is a nice feature in case you lose your phone or have nosy friends or coworkers. Most user reviews are positive and suggest that the app is easy to use and helpful, but did note that some features that are available on the browser-based version are not available on the app. The app is free.
2. If you need an app for monitoring bills
Manilla’s app is great for keeping track of your bills on the go. The app holds information for all of your different bills and sends automatic reminders when your bills are almost due; it also reminds you when reward points are about to expire. More than 4,000 businesses – credit cards, utility companies, wireless carriers, and more — are included, but you can also add other accounts that you want to keep track of but are not available online (like babysitting).
The app offers easy access to bills, financial accounts, loyalty programs, and other options, and it uses one password, which makes it easy for users to access while still being secure. Also, unlimited online document storage is also included.
3. If you need an app for increasing savings
SavedPlus offers a free mobile app for Android and iPhone, as well as a website, like the other apps mentioned. According to its webpage, clients save $4,200 per year. The app helps users meet their financial savings goals by automatically transferring a set percentage of money over to savings when clients use their credit card or checking account, which should hopefully help you save more in the long term.
Users can choose a set amount – from 5 to 20 percent of their purchases –to be saved each time. The company works with any bank, so you can include your accounts easily. All transactions are encrypted and secured by Thawte, and the company says it does not collect or store any personal information. The app seems to be popular with users and media alike.
4. If you need an app for investing
The TD Ameritrade mobile app is available for iPad, iPhone, and Android, and it allows users to quickly manage their accounts and make trades. The app allows users to analyze trends, access market news, monitor orders, view streaming quotes, and access charts for technical analysis; users can also transfer cash from other accounts. Check deposits can be up to $10,000.
The company also offers the TD Ameritrade Mobile Trader App, which is a more advanced app with more options. Users can trade stocks, manage multi-leg and complex options, use paperMoney options to test strategies, view charts with technical indicators, and see streaming programming. It is available for iPad, iPhone, Android, and tablets.
5. If you need an app for business travel
Expensify has apps for iPhone, iPad, Android, Windows Phone, and Blackberry. Expensify mobile is ideal for people who travel regularly for business purposes, because the apps allow users to track expenses, create expense reports, and even snap photos of receipts in order to save time when trying to get reimbursed later.
Once you take a photo of your receipt, SmartScan fills in all the expense details or attaches the receipt to the associated credit card expense. The process can take up to 10 minutes to complete, which seems pretty reasonable. You can also add expenses related to time spent by entering the number of hours and the rate. The app even has a mileage expense option.
There are many other neat personal finance apps out there, and you can find one for pretty much whichever part of your own finances you want to keep in check.