If college graduation is around the corner, you've probably been exploring your employment options. It's likely that one of your biggest concerns at the moment is compensation. After all, you have student loans to repay. But only focusing on the starting salary of each job opportunity may cause you to overlook two factors that could influence the value of those earnings: cost of living and standard of living.
Here's what you should know about these often confusing but critical terms.
Merriam-Webster Dictionary
- Definition of cost of living:
the cost of purchasing those goods and services which are included in an accepted standard level of consumption
- Definition of standard of living:
1: the necessities, comforts, and luxuries enjoyed or aspired to by an individual or group
2: a minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circ*mstances
Cost of living varies widely across the country.
Cost of living calculators typically compare housing, food, transportation, entertainment, and health insurance costs between two cities. When the money you earn exceeds the cost of living in a particular location, it often means you can experience a higher standard of living.
For example, an individual residing in Denver, CO who earns $50,000 in pre-tax household income would need to make $65,603 to experience a comparable standard of living in Los Angeles, CA.
A standard of living is often tied to earnings, geographic location, and lifestyle.
The measurement is not concise, as people define levels of wealth and comfort differently. But this doesn't mean you can't determine whether a particular region is a good fit for your income.
If the pay at a potential place of employment would leave you with plenty of surplus income, you can use those funds to enjoy a particular lifestyle, such as affording an upscale living space. It should then be of no surprise that regions that typically have a high standard of living also have a high cost of living.
Your career choice will influence your standard of living.
Simply because one area of the country pays workers more than in other locations, that isn't reason alone to accept a position. Cities with a higher average salary may pay more to attract workers in high-demand sectors. But that doesn't mean all local industries will benefit from this salary bump.
For example, a city might pay $10,000 more than the national average salary across industries. However, due to the high cost of living, it still may not be enough to meet basic needs for someone who lives in that city but works in an occupation with low demand.
Living comfortably means different things to different people.
Even so, you should evaluate your income and lifestyle spending to assess whether your wages will be enough to keep you in control of your finances or whether your finances will control you.
Generally, you're considered to be living comfortably when you have enough to cover your basic expenses and still have funds left over to achieve your financial goals, such as saving for a down payment on a home.
Spending less is a smart financial move, but it's unlikely to dramatically affect your cost of living.
Trimming expenses often helps plug spending leaks, but you can't out-save a high cost of living. If your earnings fall well below the cost of living in a certain area, a position with a comparable salary in a different geographic location might offer the best solution.
Your income becomes less critical when you consider its value based on where you live, how you define work/life balance, and your career stage. As you advance in your career, you'll likely earn more and be able to afford to live in a more expensive city while still experiencing the lifestyle of your dreams. But don't forget that wherever you are on your career journey, pay close attention to the cost of living to ensure your wages will match your expected standard of living.
FAQs
Cost of living calculators typically compare housing, food, transportation, entertainment, and health insurance costs between two cities. When the money you earn exceeds the cost of living in a particular location, it often means you can experience a higher standard of living.
Is cost of living the same as standard of living? ›
Cost of living is the amount of money needed to sustain a certain standard of living by affording expenses such as housing, food, taxes, and healthcare. Salaries should reflect the higher cost of living in more expensive cities like New York City.
Why is the cost of living so important? ›
Since cost of living makes a profound difference in what a dollar can buy, and this in turn makes a profound difference in a person's well-being, it is critical we gain an understanding of what determines cost of living.
How do the differences in cost of living impact people's lives in your state? ›
The cost of living in a particular area can have a significant impact on the quality of life in a particular area. It also affects local wages. Higher cost-of-living areas also typically have higher salaries. Knowing the cost of living can be helpful for several reasons.
Does cost of living really matter? ›
California also has the nation's fourth-highest level of income disparity, which explains why it also has the nation's highest level of poverty in the Census Bureau's supplemental calculation, which factors in the cost of living.
Why is the standard of living important? ›
Standard of living is important because it is a measure of the well-being of society. A high standard of living indicates that people in a society are able to live long, healthy lives and have access to resources that allow them to lead productive and fulfilling lives.
What is the difference between standard of living and level of living? ›
Alternatively, the term is applied specifically to a measure of the consumption of goods and services by an individual or group, sometimes called “level of living” (what is) as opposed to “standard” (what is desired).
Why is high cost of living a problem? ›
Stress resulting from financial struggles
People can easily get trapped in a downward spiral of financial and mental health challenges, which can result in more risk-taking behavior, such as drug and alcohol use. As the cost of living continues to rise, healthcare providers must recognize and address these challenges.
How does the cost of living affect us? ›
Most people feel the effects of cost-of-living increases in their daily lives. But rising prices hit the middle class hard, and the lower-paid harder. Higher food, gasoline, and utility costs mean less money for savings and less for discretionary spending.
Why is the cost of living unaffordable? ›
“Housing costs are the biggest contributor to California's high cost of living, and the costs are so high because liberal politicians have imposed mandates, fees, construction delays, excessive permits and more,” said DeMaio.
Federal poverty guidelines, often used to determine eligibility for social programs, change significantly when indexed for cost of living (COL) differences. Out of 38 large cities in higher-cost areas in the Northeast and West, 36 experience increases in the federal poverty guidelines.
Who is affected most by cost of living? ›
This has made it harder for people to make ends meet. While the cost-of-living crisis is being felt by many, it is disproportionately affecting people who are already on the breadline, creating a perfect storm for people who were already struggling with unrelenting pressure.
What state has the cheapest overall cost of living? ›
To determine which states are the most affordable, the research team at USA TODAY Homefront looked at the cost of living by state. Utah came out on top as the most affordable state, thanks to manageable health care costs. On the other hand, the high homeownership costs landed New York as the least affordable state.
Why is the cost of living important? ›
An equivalent salary in a new location might not be enough to maintain a standard of living. Even a significant increase might be offset by greater cost of living expenses. This is why cost of living must be taken under consideration as a major factor for choosing whether or not to move for a job.
Does cost of living affect standard of living? ›
Cost of living calculators typically compare housing, food, transportation, entertainment, and health insurance costs between two cities. When the money you earn exceeds the cost of living in a particular location, it often means you can experience a higher standard of living.
What does cost of living depend on? ›
The cost of living is affected by the average income and prices in an area. When residents earn more, their housing, food, and gas will cost more in the region. The cost of living is also affected by access to resources and the lifestyle of the residents.
What is another word for cost of living? ›
What is another word for cost of living?
| expenses | costs |
|---|
| incidentals | expense |
| outgoings | outlay |
| per diem | payments |
| price | spending |
62 more rowsStandard of living refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area. Quality of life, on the other hand, is a subjective term that can measure happiness.
What is the cost of living called? ›
Answer: The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. The Bureau of Labor Statistics (BLS) has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI.
What is the standard of living equal to? ›
Standard of living is the material well being of the average person in a given population. It is typically measured using gross domestic product (GDP) per capita.
