We know that different locations have different costs of living. Your dollar can purchase much more in some places than others. However, cost of living measurements often lack the nuance to help you decide whether a certain location would cost you more or less money.
Most cost of living assessments are based on the average amount of money households are spending overall or on a collection of variables. Sometimes these analyses also parse data by household size and other factors to better understand the data. However, they rarely consider the variability of lifestyle choices that make some places much more expensive to some individuals and families than others.
Defining a Location
The first aspect of cost of living is determining what areas are grouped together. Looking at our home of Washington, DC emphasizes this point. In a cost of living by state assessment, Washington, DC has the second highest cost of living among states (and non-states that are outside of all states) in the United States. But it is pretty obvious why DC’s cost of living is so high: cities are expensive. Washington, DC has a higher cost of living than the state of California because California has plenty of rural areas besides major metro centers like San Francisco or Los Angeles.
If we instead compare cost of living in urban areas, California would have four cities with a higher cost of living than Washington, DC. San Jose, San Francisco, Orange County, and Los Angeles-Long Beach all rank higher on the list of most expensive urban areas than Washington, DC, which comes in at ninth most expensive.
Even the areas included in this list of urban areas should show that parsing the data by urban centers is not always consistent. In some assessments, Orange County and Los Angeles-Long Beach may be considered one larger metro area. Also separated on the list are New York (Manhattan), New York (Brooklyn), and New York (Queens) ranked at first, fifth, and eighth on the most expensive urban areas list, respectively. If these areas were combined as greater New York City, they would undoubtedly reflect a lower cost of living than Honolulu, San Francisco, and San Jose (whether or not San Francisco and San Jose were combined). But that does not change the fact that, on average, it is still more expensive to live in Manhattan than Honolulu.
This same concept can be extrapolated for many different areas. Different counties in Michigan will have different costs of living, and different neighborhoods in Detroit will also vary. When investigating the cost of living in a certain area, pay attention to the parameters defining that area before jumping to any conclusions about what your life would cost there.
Family Composition
Patrick and I can easily live what we consider a pretty luxurious lifestyle in Washington, DC for less than $80K a year. We also do not have children, making a two-bedroom home more than enough space for the two of us. More importantly, we do not pay the more than $20,000 that families with children in DC pay, on average, for child care. Average child care expenses vary significantly by state, and even by smaller region as indicated in the previous section, so family size and composition may significantly impact your cost of living in different areas.
Determining how the cost of living will impact your family is not as simple as noting that you have a family of five including two adults and three kids and looking at family-of-five averages. Living in a place with the highest child care costs but more moderate housing costs may be fine for a family with three children who are teenagers, but the same scenario could provide a financial hardship for a family with three kids under age five.
Now flip the scenario. In a location with high housing prices but more affordable child care, the family with three kids under five will find life more affordable since younger children can share bedrooms more easily. The family with three teenagers who need a bit more space will struggle if they decide they need a four-bedroom home in an area with higher housing prices.
It is not just families who can struggle from housing prices: In some areas with high housing prices, being a single person living alone in a studio or one-bedroom can be the most expensive scenario per capita. Sharing expenses like housing, transportation, or food can increase affordability, but this is often not an option for an individual living alone in a new city.
Big Variables and Your Lifestyle
The previous section already touched on two of the biggest variables for many budgets: housing and child care. The other big variables are typically transportation, food, and health care. Cost of living analyses look at these expenses and more, but these are the major expenses that individuals and families cannot ignore.
But your exact needs significantly impact these expenses. Transportation is a huge one that can vary widely. For our first five-plus years in Washington, DC, we did not own a car. We used the metro to get everywhere, and Patrick’s metro bill was covered by his employer for the later part of that time. I had to pay for the metro, but I would walk or run when I could to keep my metro expenses under $100/month. This meant our total transportation cost was less than $1,200 a year. The average transportation cost for a couple with no children in Washington, DC in 2023 was $9,851.* Our transportation cost was significantly below the average based on our method of transportation and frequency of use.
If you are someone who is training for a triathlon who sometimes uses running and biking as a method of transportation to commute, run errands, or meet with friends, you may also find that your transportation costs are significantly lower than the averages. You may even have significantly lower transportation costs if you just like to walk everywhere and live in a small town! On the other hand, if you are shuttling around four kids, you and your spouse own a truck for the kayaks and an SUV for hockey equipment, and your annual mileage exceeds the typical levels enough to drive up your insurance, your transportation cost may be much higher than average.
The example for transportation holds true for all of our biggest expenses. The reality is that we all experience different realities, even for spending categories that are consistently included in the budgets of all individuals and families. There is nothing right or wrong with being the person who walks everywhere or the family that drives much more than most. These are simply realities to consider when you look into moving to a location with limited bike lanes or the highest gas prices. Understand whether your transportation method will work in that location and how much it will cost.
We have a tendency to think that everyone in our area is experiencing the same housing, transportation, food, healthcare, and (where applicable) child care costs. This is not the case. Dig a little deeper to figure out what your unique situation would cost in relation to these categories. Also consider whether you are willing to shift it to make a location more affordable. Decreasing the costs of the budget lines we consider “needs” often makes the biggest impact.
Lifestyle
I spend $7,000/year on travel but replace clothing items approximately once a decade. You may love to shop or go thrifting but only travel for a weekend away each year. Not all lifestyles are the same.
Beyond the core large expenses that we all have some variation of in our budget, our specific lifestyles can impact our cost of living significantly. If you live in an area with a relatively inexpensive open-air concert venue and love concerts, you may have a relatively low entertainment budget. If that same location has the most expensive professional sports venue in the country and you would rather go to a football game than a concert, your entertainment budget may be high.
While this can be more apparent for entertainment activities like concerts and professional sports, this same concept holds true for dining out on a regular basis and the costs of your preferred restaurants, a coffee habit and the price of local coffee houses, your gym hobby and the membership cost of the local gym, and more. Memberships at the boxing gyms in my neighborhood cost more than I have ever paid for a car payment, but Patrick’s running habit costs only the price of sneakers on a regular basis. What you do for entertainment, exercise, and socialization will vary significantly from your neighbors. You can live in the same apartment complex and have a lifestyle that costs half or double of someone else.
What Good is Cost of Living?
When we break down cost of living, it can feel like cost of living averages are ultimately unhelpful since they fail to capture the nuances of different families, expenses, and lifestyles. But these analyses can still provide you a starting point if you are considering a move and trying to gauge your personal spending realities in a new location.
I never take an overall cost of living assessment as a valuable truth by itself, but breaking it down further can help. Looking into a breakdown of averages according to family composition may shed further light into whether life is more affordable for an individual living alone or large families, on a per capita basis. If you know you require a larger home, housing costs are worth considering. Transportation costs may impact busy parents more than a couple living close to their main form of entertainment, but that couple may need to look into whether the local entertainment fits their budget.
We all have different spending priorities. I have seen cost of living assessments most frequently used to complain about a certain area being expensive. Rather than complaining, figure out realistic estimations of what your lifestyle could cost in different locations. Figure out your non-negotiables that make you happy, and consider what you do not mind changing for significant savings. You may just find that you can easily live a rich life for relatively little money in an area considered to have a high cost of living. I know I do.
* We bought our car in December 2020, so the $9,851 quoted for 2023 is surely higher than the 2020 reality. That said, the cost did not increase to 8x the cost in less than three years, so our cost was still significantly lower than the average.
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