What Is ‘Cost of Living’? A Resource Guide for Homebuyers

If you’re planning a move to a new location, it’s likely you’re calculating costs — everything from the price of a home and groceries to what your new electric and water bills might look like. You’ve probably heard the phrase “cost of living” thousands of times, but as you review your finances, you may be asking, “What is cost of living?”

It’s more than just a figure; it’s an ever-changing factor that influences your standard of living, especially if you’re planning to sell your current home and purchase a new one in a new city.

In this post, we explore the concept of “cost of living,” provide Cost of Living Index (CLI) links you can use, and share a handy set of additional tools to measure cost of living expenses in other places before you make your move.

What does ‘cost of living’ mean?

The phrase “cost of living” encompasses the financial requirements needed to maintain a specific lifestyle in a particular area. As defined by Statista, a leading market data provider, it is “the monetary cost of goods and services necessary to maintaining a certain standard of living.” This cost varies significantly based on location and lifestyle choices.

At its core, the cost to live somewhere typically includes the expenses you incur for:

Housing (rent/mortgage)
Energy (utilities)
Food (groceries)
Transportation (vehicles or transit systems)
Healthcare (doctors, hospitals, etc.)

However, it extends beyond these basics to cover other aspects, such as:

Clothing
Education
Childcare
Entertainment

All these elements combined paint a comprehensive picture of the cost associated with a particular way of living.

Your standard of living is largely influenced by your salary or income, your debts, and how these compare to the costs of basic needs in the region where you live — or where you want to live. Let’s look at some ways you can compare the cost of living you have now with what you might experience in a new location.

What is a cost of living index (CLI)?

A cost of living index (CLI) monitors how much these basic expenses go up or down over time in different cities or regions. They provide a way for you to compare the price of maintaining a certain standard of living.

The CLI is calculated by assessing the price of essential goods and services such as housing, food, healthcare, and transportation in different areas.

An index is typically standardized, with a base city or region being assigned a baseline index value (often set at 100). Other cities or regions are then compared against this benchmark. For example, an area with a CLI of 120 would signify that living there is 20% more expensive than the base location, while an index of 80 indicates it’s 20% less expensive.