cost of living assignment

Cost of Living | Definition, Analysis & Adjustments

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June Leung has a bachelor's degree in biochemistry and has taught high school students STEM topics.

Shawn has a masters of public administration, JD, and a BA in political science.

Table of Contents

What is cost of living, cost of living adjustments (colas), cost of living criticisms, lesson summary, what are some common expenses considered when calculating a cost of living.

Some common expenses include food and beverages, housing, apparel, transportation, health care, recreation, education, and other goods and services that are typical for the average consumer. This expense does not include luxury items.

How is cost of living calculated?

The cost of living is calculated by taking into account all cost that is required to live in a city. Different calculators and parties will assign different weights to the goods and services. For an individual, they can add into all their essential expense to gain insight into their personal cost of living.

What does cost of living mean?

Cost of living is an economic concept that refers to the general price level for goods and services that the average consumer will purchase for their activities of daily living. It doesn't include all goods and services but a market basket of typical goods and services.

Cost of living is an economic concept that refers to the general price level for goods and services that the average consumer will purchase for their activities of daily living. It doesn't include all goods and services but a market basket of typical goods and services. It can also be considered as the price of living in a city. When comparing the livability of different cities, knowing the cost of living definition is helpful. Cost of living analysis takes into account the average income of people living in different areas, therefore is a more accurate view when analyzing whether living in one area is cheaper or more expensive than living in another.

Using a simplified example, if a gallon of milk costs $1 in city A and $5 in city B if only the face value is considered, it may seem like living in city A is cheaper. But taking into account of earning power of people, it may be the case that the average household in city A earns $20 monthly while the average household income in city B is $200, which makes city B the cheaper city to work and live in.

What are Living Expenses?

Living expense refers to the cost of goods and services that the average consumer will purchase for their activities of daily living. As mentioned above, there are some common expenses considered when calculating a city/nation's cost of living, which are listed below:

• Health care
• Transportation
• Food and beverages
• Other goods and services that are typical for the average consumer

Cost of Living Analysis

Cost of living analysis is done by comparing the price of a range of goods and services between cities, and the same basket of goods will be weighted based on spending patterns and individual budgets. Different cost of living calculators has different weighting for different items. Generally, housing, groceries, and transport are weighted higher, while apparel will be weighed less. One can also take into account their spending habit and determine a weighting system for themselves. For example, if a household includes young children, one may consider giving a higher weight to education. In contrast, if the household has grown-up kids, then the weighting for education can be decreased or even taken out of the calculation.

In the example above, for an individual to move from city B to city A, they may have to look for higher wages than they originally have in city B in order to maintain their existing quality of life. The online cost of living calculators can be used as a reference.

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Cost of Living Adjustments abbreviated as COLA is an increase in pay or benefits offered by some employers and governments to offset the rising cost of living attempts to counter the rising cost of living. COLA takes into account the Consumer Price Index for Urban Wage Earners and Clerical Workers as the baseline of calculation. This adjustment aims to provide insight to correspond to the increase in the cost of living and the increase in salary for workers in order to maintain their purchasing power. As inflation, defined as the rate of increase in price over a given period of time, is generally the trend of how the price of goods and services go, COLAs are important for the government and business owners to consider. This adjustment will be reflected in the pay, government benefits, or pension benefits. As COLAs are meant to maintain the quality of life, not increase or decrease it, luxury items are not included in this calculation.

What is Cost of Living Index?

Price index can be used as a tool for measuring inflation as well as the cost of living. It is a weighted average of prices of a selected basket of goods and services measured over time. A base year will be established, which is set at 100, and the increase and decrease in the price of that basket of goods and services will be calculated and compared to the base year. A number larger than 100 indicated an increase in the cost of living and vice versa. An index of 125 compared to the base year means that the price of the basket of goods and services has increased by 25%.

The Consumer Price Index (CPI) published by the Bureau of Labor Statistics is the standard that is taken into account by COLAs as required by the Social Security Act in the United States.

One of the criticisms of COLAs is that they do not take into consideration of taxes. The increase in income may be charged in a higher tax bracket, which means that the increase in disposable income may not increase as much as the COLAs intended to indicate. Another criticism is that since COLAs take into account a similar basket of goods and services, they do not take into account how people's purchasing behavior and pattern can change as the cost of living changes. For example, people may decrease the times they eat out or rent movies instead of going to the cinema, which COLAs may not be able to represent well.

Cost of living is an economic concept that refers to the general price level for goods and services that the average consumer will purchase for their activities of daily living. It doesn't include all goods and services but a market basket of typical goods and services. Cost of Living Adjustments is an increase in pay or benefits offered by some employers and governments to offset the rising cost of living attempts to counter the increasing cost of living. It is not a raise but rather an attempt to keep your purchasing power the same by taking into account inflation.

A price index consists of a set of goods and services typically purchased by consumers. The index for the base year is a hundred, and each year the index may increase or decrease depending on inflation or deflation. The index number for the current year can be used to compare against the base year to see how much prices have changed over that period. A price index is often used to determine the level of COLA increases. The index will include products that are typical purchases for daily living of the average population and will not include luxurious items or uncommon purchases. Two criticisms include the failure to take into account different tax brackets due to COLA increases and the fact that consumers often change their buying behavior to adjust to increasing prices.

Cost of living is an economic concept consisting of the general level of prices for goods and services that typical consumers purchase for their activities of daily living. It is used to determine cost of living adjustments (COLAs) , which are increases in pay, government benefits or pension benefits to match the rate of inflation so that a person's purchasing power remains the same or is not as adversely affected.

How it Works

Cost of living adjustments may be determined contractually between employees and employers with a set rate, or through the use of a formula using a price index for the calculation. A price index is a weighted average of prices of a market basket of selected goods and services measured over a period of time.

The index uses a base year for the items in the index, which is set at 100. You then measure the increase or decrease in prices each year relative to the base year. For example, let's say an index has a base year of 1980 and the base year value is 100. In 2010 the index value is 125, which means that prices in the market basket of goods and services have increased 25% from 1980 to 2010.

Some examples of indexes that may be used to make COLA determinations include the consumer price index, a cost-of-living index that varies by geographic region, or a chained consumer price index, which tries to take into account changes in customer buying behaviors due to raising prices (such as buying cheaper substitutes).

Common Expenses Considered

Price indexes used for COLAs often include the following expenses:

As you can see, the idea is to generate a basket of goods and services that reflect what a consumer typically purchases so that their compensation or benefits can be adjusted to maintain the same level of purchasing power and quality of life. Remember, however, the idea is to maintain the quality of life, not increase it.

Two Criticisms

COLAs have been subject to some criticism. One criticism is that COLAs don't take into account that the increase in income may push you into a higher tax bracket, which results in payment of more taxes. Since income tax increases aren't taken into account, COLAs don't always leave you in the same economic place you were after price increases because you have less money due to the extra taxes.

On the other hand, some criticize COLAs for not taking into account the fact that consumers will change their purchasing behaviors when facing price increases. For example, they might buy cheaper product substitutes such as standard auto-drip coffee instead of premium whole beans. The chained consumer price index attempts to address this problem.

Cost of living is simply the price of goods and services the typical consumer purchases for the daily activities of living. A cost of living adjustment is sometimes provided by employers, pension plans, and the government to take into account cost of living increases by increasing pay or benefits. COLAs are often calculated by using a price index that compares the price of certain goods and services at a base year to the current cost of the goods and services. Criticisms of COLAs include that they often don't take into account increases in the person's tax burden and the fact that a person will often adjust her purchasing behavior in light of rising prices.

Cost of Living Overview

Learning Outcomes

When this lesson ends, you should be able to:

• Define cost of living
• Identify cost of living adjustments
• Describe a price index
• Explain the possible criticisms of using COLAs

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Cost of Living: Definition, How to Calculate, Index, and Example

Investopedia / Laura Porter

What Is the Cost of Living?

The cost of living is the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain place and time period. The cost of living is often used to compare how expensive it is to live in one city versus another. The cost of living is tied to wages. If expenses are higher in a city, such as New York, for example, salary levels must be higher so that people can afford to live in that city.

Key Takeaways

• 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.
• The cost of living index compares the cost of living in a major city to a corresponding metropolitan area.

Cost of Living and Lifestyle

The cost of living can be a significant factor in personal wealth accumulation because a salary can provide a higher standard of living in a city where daily expenses such as rent, food, and entertainment are less. In contrast, a high salary can seem insufficient in an expensive city such as New York. In a 2023 survey, Mercer, a global human resources firm, finds the cities with the highest cost of living include Hong Kong, Singapore, Zurich, Geneva, and Basel in Switzerland, in that order. New York City was ranked the costliest city in the United States followed by Los Angeles and San Francisco, and Honolulu.

Changes in the CPI are often a triggering event in labor and other contracts with escalation clauses. The contract will detail exactly how any periodic adjustments happen and what parts of the contract will change.

The Cost of Living Index

The  cost of living index compares the cost of living in a major city to a corresponding metropolitan area. The index incorporates the expense of various living expenses creating an aggregate measure that workforce entrants can use as a benchmark. 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.

Different indexes may calculate living expenses differently. For example, in 2023, Kiplinger found San Diego to be the most expensive city based on the Council for Community and Economic Research, not New York City. The Council's cost of living index measured prices in 265 urban areas for expenses such as housing, groceries, utilities, transportation and healthcare, even getting a haircut or going to a movie. In the case of San Diego, the cost of housing is 122% above the national average, and the cost of transportation is over 32% higher than the national average.

Three out of six of the world’s most expensive cities for expatriates are now in Switzerland.

Cost of Living and Wages

The rising cost of living has spurred debate over the U.S. federal minimum wage and the disparity between the lowest salary allowed by law and the earnings needed to maintain an adequate cost of living. Proponents of a hike in wages cite increased worker productivity levels since 1968 as inequitably correlated to the minimum hourly rate of pay. As pay levels once tracked the increase in productivity, the divergence between earnings and worker efficiency has reached historically disproportionate levels. By contrast, opponents of a minimum wage contend that a raise could spur higher consumer prices as employers offset rising labor costs.

Multinational corporations use cost of living to assess expatriate salary packages for international assignees.

Wage Increases and Cost-of-Living Adjustments (COLAs)

In 1973, Congress enacted legislation to address cost-of-living adjustments (COLAs) . COLA adjustments for Social Security and Supplemental Security Income (SSI) benefits were instituted so that the payments keep pace with inflation . For example, in December 2022, the COLA was 8.7% and the increased amounts were to be paid starting in January 2023. Federal SSI payment levels increased by the same percentage.

The Social Security Act requires  COLA s to be based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration states that:

A COLA effective for December of the current year is equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective.

Real World Example

The Economic Policy Institute updated its Family Budget Calculator in March 2022. The calculator helps families determine how much salary they will need to cover the cost of living in 3,142 counties in all 613 metro areas. The calculator finds San Francisco to be the most expensive city and a two-parent household with two children would need a total income of $142,481 with a basic budget for expenses. The least expensive metro area was the McAllen-Edinburg-Mission metro area in Texas, where the same family would need a median income of $45,446. Interestingly, there is nowhere in the United States where a single adult with no children would be able to cover the cost of living by earning the minimum wage .

Mercer. " 2023 Mercer Cost of Living Survey .”

Kiplinger. “ The 11 Most Expensive Cities to Live in the U.S. .”

Economic Policy Institute. “ Raising the Federal Minimum Wage to $15 by 2025 Would Lift the Pay of 32 Million Workers .”

U.S. Congress. “ H.R.11333 – an Act to Provide a 7-percent Increase in Social Security Benefits Beginning With March 1974 and an Additional 4-Percent Increase Beginning With June 1974, to Provide Increases in Supplemental Security Income Benefits, and for Other Purposes .”

Social Security Administration. “ SSI Federal Payment Amounts for 2023 .”

Social Security Administration. “ 2023 Social Security Changes ,” Page 1.

Social Security Administration. “ Computation of the Social Security Laws .”

Economic Policy Institute. “ Updated Family Budget Calculator Provides Data on the Cost of Living in Every County and Major Metropolitan Area .”

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Cost of living calculator

Current city If you can't find a city, you can type the state name to see all cities available in that state.

Los Angeles-Long Beach

Comparable Income: $43,451

Miami-Dade County

Comparable Income: $34,012

Comparable Income: $33,451

Comparable Income: $43,658

New York (Manhattan)

Comparable Income: $67,198

Philadelphia

Comparable Income: $30,295

Where does the data come from?

Core cost of living data is from The Cost of Living Index - COLI from the Council for Community and Economic Research, or C2ER. Researchers conducted price collection in each city at a specified time and followed specific standards.

Education data was provided courtesy of Greatschools , a nationwide ratings system that evaluates schools based on performance on state achievement tests, graduation rates and other factors.

NerdWallet’s calculator doesn’t include tax data, which can vary by and within metropolitan areas.

How is this tool different from other resources out there?

If you want more information about one of the cities you’ve compared, you can use NerdWallet’s City Life tool for data on local schools and businesses, walkability and demographics — more than basic cost comparisons. You can see Manhattan’s page here . Input the city name and state abbreviation for other locations to see their information.

What is ‘cost of living’?

One of most important determinations you need to make before moving to a new city or town is how much it will cost to live there. “Cost of living” is the amount of money you need to sustain a certain lifestyle in a given place.

Because the price of goods and services varies from one city to the next, calculating the cost of living will determine how affordable it is to live in a certain area. The expenses that factor into cost of living can include housing affordability, transportation expenses, food prices and entertainment costs. Cost of living is also tied to income, as salary levels in a geographic area are measured against these expenses.

What is the breakdown of the cost of living?

Housing costs: According to the U.S. Bureau of Labor Statistics, the largest bill consumers pay each month is for housing. Whether that’s a mortgage or rent, a large percentage of your salary will go toward your housing expenses. Home prices, property taxes and monthly rents vary from state to state, city to city, town to town and even neighborhood to neighborhood. For homeowners, there are more expenses to consider than just the monthly mortgage payment. There are also maintenance costs, upgrades, taxes and fees to take into account when deciding where to live.

Transportation: Unless you’re lucky enough to work from home, you will need to factor in transportation costs when deciding where to live. According to the BLS, transportation is the second-largest expense consumers have. For some, these costs include taking public transportation. For others, it involves driving your car, and that means factoring in car repairs, gas, tolls and parking. Proximity to employment is an important consideration because it can drastically impact your cost of living.

Food: Weekly trips to the grocery store can add up, especially if food costs are high where you live. According to the latest BLS data, consumers average over $8,000 per year on food expenses. There are ways to trim that down. You could eat out less, cut back on takeout and cook more often. But even then, the price of groceries is going to significantly influence your cost of living.

Entertainment: A movie ticket, a pint of beer, box seats at a baseball game — they can all come with a different price tag depending upon where you live. And it adds up. Americans spend an average of more than $3,500 per year on entertainment. But just like with food costs, you can curb how much you spend on entertainment by altering your behavior.

Healthcare costs: On average, Americans spend almost $5,500 per year on healthcare costs. For most people, the bulk of these costs are made up by insurance premiums, but if you’re uninsured — or are considering an area with few in-network providers — healthcare costs may play a role in where you decide to live.

Education: Some of the metro areas covered by this calculator also include a GreatSchools score, which gives public schools a 1-10 rating. If you’re moving to an area with excellent public schools, your education costs may remain low — most Americans pay about $1,200 per year — but if you decide you’d prefer private schools for your child, this may also factor into your cost of living.

What is a cost of living index?

A cost of living index allows you to directly compare what it costs to live in one area against another, helping you understand how far your money can go in each place. For example, the cost of living in San Francisco is twice that of Twin Falls, Idaho. Whether you use a cost of living index or a cost of living calculator, each will help you feel more confident in deciding where to live.

About the calculator

NerdWallet’s cost of living calculator is powered by data from C2ER. According to the council, its cost of living index “is the only local level cost of living index available for the U.S.” It adds that, “Items on which the Index is based have been carefully chosen to reflect the different categories of consumer expenditures."

C2ER was founded in 1961, and it continues to exist today as a nonprofit organization. It has published its quarterly Cost of Living Index since 1968. It is comprised of data about “over 60 goods and services collected at the local level from over 300 independent researchers.”

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Cost Of Living

Cost of Living refers to the amount of money required to maintain a minimum standard of living, by being able to afford the basic necessities of life such as food, clothing, shelter, transportation, telephone and internet, recreation, education, healthcare, taxes, and other utilities. It determines what amount we pay, for availing the necessary items and amenities.

Changes in the cost of living over time are often operationalized in a cost-of-living index. Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas. Differences in cost of living between locations can also be measured in terms of purchasing power parity rates. With the help of cost of living, one can easily make a comparison between one place to another, as it differs from area to area and also changes over time, i.e. the advancement of technology, modernization, and industrialization lead to an increase in the cost of living.

The cost of living is often used to compare how expensive it is to live in one city versus another. The cost of living is tied to wages. If expenses are higher in a city, such as New York, for example, salary levels must be higher so that people can afford to live in that city.

The cost of living is indicated through the measure of a Cost of Living Index and the Parity of the Purchasing Power.

• The Cost of Living Index – This index is a hypothetical price index that measures the living cot over time in countries. The index is availed quarterly and it considers the price of services and goods, allowing for the substitution with other valuables as prices fluctuate. The index is best used to compare the cost of living amongst different countries.
• Purchasing Power Parity – To measure the cost of living, this variable utilizes the difference in currencies to measure the cost of living. It is a theory which states that the rate of exchange between two currencies is equal to the ratio of the purchasing power of the currencies. Thus, it is correct to extrapolate that there is a difference in the cost of living, among the countries that use different currencies.

The cost of living can be a significant factor in personal wealth accumulation because a salary can provide a higher standard of living in a city where daily expenses such as rent, food, and entertainment are less. In contrast, a high salary can seem insufficient in an expensive city such as New York. In a 2018 survey, Mercer, a global human resources firm, finds the cities with the highest cost of living include Hong Kong; Luanda, the capital of Angola; Tokyo; Zurich, and Singapore, in that order. New York City was ranked the costliest city in the United States followed by San Francisco and Los Angeles, Chicago, Washington, and Boston.

Employment contracts and pension benefits can be tied to a cost-of-living index, typically to the consumer price index (CPI). A Cost-of-living adjustment (COLA) adjusts salaries based on changes in a cost-of-living index. Salaries are typically adjusted annually. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves. In this latter case, the expatriate employee will likely see only the discretionary income part of their salary indexed by a differential CPI between the new and old employment locations, leaving the non-discretionary part of the salary (e.g., mortgage payments, insurance, car payments) unmodified.

Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as cost-of-living adjustments or cost-of-living increases because of their similarity to increases tied to externally determined indexes. The cost-of-living allowance is equal to the nominal interest minus the real interest rate.

The rising cost of living has spurred debate over the U.S. federal minimum wage and the disparity between the lowest salary allowed by law and the earnings needed to maintain an adequate cost of living. Proponents of a hike in wages cite increased worker productivity levels since 1968 as inequitably correlated to the minimum hourly rate of pay. As pay levels once tracked the increase in productivity, the divergence between earnings and worker efficiency has reached historically disproportionate levels. By contrast, opponents of a minimum wage contend that a raise could spur higher consumer prices as employers offset rising labor costs.

For 2018, the Social Security cost-of-living adjustment (COLA) is 2.0% (a significant increase over the 0.3% figure used for 2017). The maximum Supplemental Security Income (SSI) benefit will go from $735 to $750, while the maximum SSI payment for a couple will go from $1,103 to $1,125. The estimated average monthly benefit for a disabled person will increase from $1,173 to $1,197. The estimated average monthly benefit for a retired person will increase from $1,377 to $1,404. The presumptive Substantial Gainful Activity (SGA) threshold will increase from $1,170 to $1,180 for non-blind individuals, but from $1,950 to $1,970 for blind individuals. The Trial Work Period (TWP) monthly amount will increase from $840 to $850. The amount of earnings needed for a worker to obtain a “quarter of coverage” or “credit” will increase from $1,300 to $1,320. Maximum taxable earnings under the Social Security OASDI program will go from $127,200 to $128,700.

In 2019, Social Security benefits increased by 2.8 percent the largest cost-of-living adjustment (COLA) in seven years.

The Economic Policy Institute updated its Family Budget Calculator in March 2018. The calculator helps families determine how much salary they will need to cover the cost of living in 3,142 counties in all 611 metro areas.

The calculator finds San Francisco to be the most expensive city and a two-parent household with two children would need a total income of $148,439 with a basic budget for expenses. The least expensive metro area was Brownsville, Texas where the same family would need a median income of $32,203. Interestingly, there is nowhere in the United States where a single adult with no children would be able to cover the cost of living earning the minimum wage.

The most recent survey was published in March 2017. Singapore remains the most expensive city in the world for the fourth year running, in a rare occurrence where the entire top five most expensive cities were unchanged from the year prior. Sydney and Melbourne have both cemented their positions as top-ten staples, with Sydney becoming the fifth most expensive, and Melbourne becoming the sixth. Asia is home to more than five most expensive cities in the top twenty but also home to eight cheapest cities of the cheapest ten.

Information Sources:

• investopedia.com
• differencebetween.net

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Calculating cost of living indices in international assignments [Infographic]

ECA carries out surveys of living costs around the world to help organisations calculate appropriate salary packages when their employees go on an international assignment. Survey results are published in the form of cost of living indices, which compare the living costs in the assignee’s home location with those in the host. An index of 160, for example, would mean that the host location is 60% more expensive than the home (which is always 100). When applied to salaries effectively, cost of living indices enable assignees to maintain their usual level of buying power while living in a cheaper or more expensive location. 

The infographic above shows the stages of how a cost of living index is calculated by ECA. Unfortunately, we do not really have such a contraption doing all the calculations! We rely instead on a team of experienced analysts and researchers to work with our dedicated software to ensure the whole process runs smoothly to calculate the hundreds of thousands of indices used by our clients each year.

In order to calculate cost of living indices, prices are collected for a basket of more than 170 everyday goods and services in the 500+ locations that ECA surveys. Average prices in the home location are then compared to prices of the same items in the host. Each item in the index is given a weight that reflects its relative importance in the home consumption pattern e.g. food items are given a higher weighting than leisure items, because households generally spend a larger proportion of their income on the former than the latter. This ensures that the price differential for individual items influences the index to an appropriate extent.

This process is repeated at least twice a year by our experienced team of analysts for all ECA cost of living locations to ensure the information published by ECA is always up to date. 

For more information about how ECA's indices are calculated and applied to protect the buying power of people moving between countries as well as looking at what causes them to change over time please download our free white paper .

ECA publishes  Cost of Living data  for more than 500 cities around the world. It is available from ECA in several forms: as part of a subscription in a calculator which allows you to experiment with different types of index and review the outputs; in reports, providing background detail for specific indices; and as part of the  Build-up Calculator  for performing balance-sheet remuneration calculations. Cost of living data is also pre-populated in  ECAEnterprise , our Assignment Management System, in ECA’s Cost estimate calculator and in our  Net-to-Net Calculator .

Please  get in touch  to find out more about ECA’s cost of living data or to  request a demo  of the tools available. 

Understanding Global Assignment Costs

By LaQuita Morrison, GMS

Confidence in the U.S. economy is rising, and with it, the number of companies seeking to establish, strengthen or expand their global positions is increasing. Often, this involves expatriating talent to fill key positions in other countries. Some companies will also provide global assignment opportunities to expand their employees’ knowledge and skills.

Whether your company is well versed or new to managing global assignments, the cost of them can be daunting. However, when appropriately managed, global assignments can positively impact a company’s global business goals.

Sending an employee and a family of three on a three-year global assignment could cost in excess of USD $1 million. So, it’s not surprising that many global companies believe traditional overseas assignments are cost-prohibitive. Some companies have reduced, frozen or even eliminated their global assignment programs. However, to remain competitive, companies still need to place the best talent at the appropriate locations, and often that talent isn’t available without a global transfer. This is when the proper management and oversight of relocation costs becomes imperative.

Understanding the Costs

If you’re planning global assignments, there are ways to scale back costs without compromising operations or impacting employee productivity. Finding that balance between employee support and cost management to successfully oversee global assignments is a challenge, but it can be done. Below is a list of some of the expenses associated with a global assignment:

• Candidate Assessment – Conducted by the company to determine if the employee is the right candidate for the global assignment.
• Pre-Decision Assessment – Aligns the individual needs of the employee and the employee’s family with the business goals of the assignment.
• Immigration – Obtaining the appropriate documentation for the assignment. The reason for the assignment will dictate the appropriate visa type.
• Tax Implications – Determining the tax implications of the assignment and responsibilities of both the company and the employee.
• Tax Assistance – Providing the employee with tax assistance, which could include consultation; preparation (for both home and host countries); filing (for both home and host countries); tax equalization.
• Host Country Housing – Providing reasonable and customary rent and utility costs for the employee’s housing in the host country according to regional guidelines based on family size and location.
• Cost-of-Living Allowance (COLA) – An allowance or differential paid to the employee for similar goods and services in the host location that they have in the home location based on family size and salary. Intended to cover costs to purchase host country goods and services over those from the home country.
• Transportation – An allowance for a car for the duration of the assignment, the amount of which may vary by location and family size.
• Hardship – An allowance paid in addition to salary and COLA for assignments in locations designated as a hardship for the employee based on factors that include potential violence, incidence of disease, medical care quality, geographic isolation and availability of goods and services.
• Miscellaneous Expense Allowance – One-time payment made, separate from base salary, intended to cover expenses not expressly covered in the Letter of Understanding, like renter’s insurance, obtaining a new driver’s license, immunizations, taxis, etc.
• Cultural/Language Training – Provided to the employee and the family to assist in understanding the host country culture and language.
• Home Finding and Destination Services – Locating housing in the host country, as well as registering with local authorities and setting up accounts.
• Departure Services – Home sale, property management, lease termination, etc.
• Global Household Goods – Transporting (via land, air and/or sea) or storing household goods and personal effects.
• Temporary Living – Fully furnished housing at the destination location.
• Repatriation – Return of the employee to the home country following assignment completion.

To learn more about managing global assignment costs, download our free guide.

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What is Cost of Living?

Cost of living refers to what it takes to afford life’s necessities like food, utilities, shelter and transportation—or what we call the Four Walls. Before you get dead set on moving to a new city, make sure you can take care of the Four Walls and maintain your standard of living there. Let’s dig into the nitty-gritty of the expenses that go into your cost of living calculation.

This is the big one. Whether you’re renting or buying a house, it’ll be hard to balance other financial goals if your monthly housing costs (rent or mortgage) are more than 25% of your monthly take-home pay—including property taxes and insurance. Even if rent is sky-high in your new city, the 25% rule still applies. Try finding a roommate to keep this category in check.

Let’s taco ‘bout food. We recommend spending 10-15% of your take-home pay on groceries and dining out. Depending on where you live and what you eat, you can actually see a difference in food costs from city to city. For example, if you’re moving to another state, food might be taxed differently, which can add up to some serious dough unless you adjust your budget accordingly.

Transportation

Transportation costs —car repairs, gas, tolls, parking permits—can wreck your budget if you don’t plan ahead. These expenses should fall within 10–15% of your monthly income. If transportation is pricier in a new city, try to find housing that gives you a short commute. On the bright side, if there’s good public transportation, you might be surprised by how much money you could save.

Health Care

Most people factor in health care to cost 5-10% of their monthly take-home pay. But similar to how health care needs can vary from month to month, health care costs also vary from state to state. Trips to the doctor or dentist—not to mention insurance premiums—can differ depending on location. But keep in mind, your age and lifestyle habits have a bigger influence on your health insurance premium than where you live.

Other Expenses to Consider

Depending on your life stage, you won’t want to forget about how these expense categories might change when relocating: entertainment, taxes and childcare. Make sure to do your research! It'll be nice if you’re moving somewhere with lower costs, but it probably won’t seem quite so peachy the other way around. 

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 where did we get our data.

The data driving our Cost of Living Calculator comes from the Cost of Living Index, which is published quarterly by the Council for Community and Economic Research (C2ER). This index is recognized by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics as legit—so we feel pretty confident in these numbers.

If you want to learn more about C2ER, get the scoop here .

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Cost Of Living Calculator

Planning a move to another town, city or state? The biggest factors in any move are the standard of living and what salary you’ll need to make in order to reach that standard.

Our cost of living calculator will help you figure out if your move will work for your budget and salary. Ideally, you’ll find that you can afford the cost of living in your new destination, but having that knowledge handy before you move can help set expectations or help you decide to move somewhere else.

Calculate Cost Of Living

To maintain your standard of living in San Francisco, CA , you'll need a household income of:

The cost of living is 31.68 % lower in San Francisco, CA

The total income needed is $16,839 less than your current household income.

Transportation tends to cost 9.01 % higher .

Homes tend to cost 40.17 % lower .

The cost of living in San Francisco, CA is 31.68 % lower than your current city.

Utilities tend to cost 29.54 % higher .

Housing Cost

Transportation

Miscellaneous Goods and Services

Cost of Living by Major Cities

What Is “Cost of Living?”

Whether you’re looking for a fresh start on an opposite coast, heading to a new region for work or moving closer to family, cost of living will play a big role in how much house you can afford while maintaining your desired standard of living.

Besides your monthly mortgage payments and other housing costs, being able to afford a home also requires enough money to cover a host of other ongoing expenses, such as food, transportation, taxes, utilities, healthcare, childcare and entertainment.

Not surprisingly, cost of living varies widely from place to place. For instance, it’ll cost you considerably less to live in Fort Smith, Arkansas compared to Fort Lauderdale, Florida.

As you shop for a home in different cities and towns, crunch the numbers using our cost of living calculator to see how your total cost of living expenses vary.

Cost of Living Breakdown

Total annual household expenditures averaged $66,928 in 2021, according to the Bureau of Labor Statistics (BLS). Here are some common categories and general estimated costs to factor in when figuring out where you can afford to live.

1. Housing Cost

The average American household spent roughly $5,577 per month in 2021. Some 33% of that—or approximately $1,885—went toward housing costs.

Housing will likely take the largest bite out of your budget, so you must keep your monthly housing costs within certain limits.

This is where the 28/36 rule comes in, which clarifies how much how you can afford . The 28/36 rule is a common sense guideline that states you should not spend more than 28% of your monthly gross income on housing—either your mortgage payment or rent—and 36% of your monthly gross income on your total debt. Total debt includes your housing debt along with all other forms of debt, such as student loans and auto loans.

2. Transportation

Transportation ranked second in 2021 behind housing for the highest household cost, according to the Bureau of Transportation Statistics. Households spent an average of $10,961—or $913 per month—on transportation expenses. These expenses included public transit and motor vehicle-related costs like auto purchases , parts, fuels, rentals, leases and insurance.

3. Healthcare

Healthcare ate up $5,452 of the average annual household budget in 2021—roughly $454 per month. Health insurance makes up the largest portion of that number. Other costs in the healthcare category include medical services and supplies and drugs.

4. Miscellaneous Goods and Services

The miscellaneous goods and services that factor into a household budget will vary. Some examples include:

• Personal care products and services
• Tobacco products and related supplies
• Legal advice
• Consulting services
• Gym memberships
• Landscaping services
• Subscriptions
• Education costs
• Finance charges

These types of costs may not always be top of mind when putting together a monthly budget, but they’ll inevitably have some impact on your cost of living, so don’t forget to include them.

What Is the Cost of Living Index?

A cost of living index tracks typical living expenses over time for housing, food, healthcare, clothing, entertainment, childcare and other costs across different regions. Although there’s no federally reported cost of living index, organizations such as the Economic Policy Institute and Council for Community and Economic Research provide tools to calculate and compare costs.

Cost of living indexes typically use numerical values when measuring and comparing affordability, often working with either the national average as a benchmark or a base score of 100 for a specific city. When comparing a new location against the base city, the resulting numerical score indicates where the cost of living will likely be higher or lower between the two locations.

Why Should You Do a Cost of Living Comparison?

A cost of living comparison can estimate how far your salary will go based on location. Consequently, comparing expenses between cities or towns offers you more clarity on your home-buying journey by helping you better target more affordable regions that also provide a similar standard of living.

Frequently Asked Questions (FAQs)

What major factors should i consider before relocating.

Besides cost of living expenses, there are other factors you’ll want to weigh when determining the best fit for you to relocate. Don’t forget to add these factors to your relocation pros and cons list before you pack your bags:

• Job opportunities
• State and local taxes
• Public transportation quality and access
• Parking availability
• Public safety
• School quality
• Grocery store accessibility and dining choices
• Entertainment and culture options

How does income influence cost of living decisions?

Income plays a central role in cost of living decisions. After all, your paycheck largely determines how much you can afford to spend every month. For this reason, before buying a home, consider how secure you feel in your job.

Also, inflation is inevitable. So when deciding where to live, determine whether your income level will be able to keep pace with cost of living increases. Your income will also become stretched with childcare costs if you plan on starting or expanding your family, so factor that into your decision-making when investigating where you can afford to live comfortably.

How much should I spend on necessities including housing?

Regarding how much of your income you should apply to what costs, there’s a general principle known as the 50/30/20 budget rule . The guideline advises you to devote 50% of your post-tax income to must-have needs, 30% to wants and 20% to savings. So, housing costs fall into that 50% category.

Other necessities in the 50% “must-have needs” category include groceries, utilities, car payments and healthcare.

Should I rent or buy?

Buying a home is one of the most significant decisions you’ll make. Consequently, whatever the circumstances in the housing market, whether you should rent or buy is a highly individual decision. Each person must take stock of their financial health, lifestyle requirements and future goals.

For instance, if you need to stay in one location for an office job, plan to settle down and start a family or decide you prefer the stability and equity benefits owning a home offers, buying could be the right move if you have enough money to invest in homeownership.

On the other hand, if you need to be location-flexible or don’t have enough funds built up yet for a down payment, renting is probably the better option. However, if buying a home is in your plan, use this time to save by taking on a roommate, renting a cheaper apartment or moving in with family. Also, open a dedicated savings account to earmark money for your down payment.

What is the cost of living increase for 2024?

The Social Security cost-of-living adjustment (COLA)—which aims to counteract inflation—for 2024 is 3.2%. This is down from the 8.7% COLA in 2023. The new COLA will take effect in January 2024.

Your household income will be worth the most in the following cities:

If you would like to know the cost of living in other cities, then please enter a city name.

Today’s Refinance Rates: June 18, 2024—Rates Remain Stable

Mortgage Rates Today: June 18, 2024—Rates Remain Fairly Steady

Examining The Cost Of Living By State In 2024

Mortgage Rates Today: June 17, 2024—Rates Move Down

Mortgage Refinance Rates Today: June 17, 2024—Rates Climb

Current National Refinance Rates: June 14, 2024—Rates Decrease

The Mercer Mobility Exchange website and its divisional websites may be translated for your convenience using translation software powered by Google Translate, a free online language translation service that can translate text and web pages into different languages. Reasonable efforts have been made to verify the reliability of the translation service, however, no automated translation is perfect nor is it intended to replace human translators. Mercer does not guarantee the accuracy of the translated text. Some pages may not be accurately translated due to the limitations of the translation software. Text in images, PDF files, Word documents or other document types cannot be translated. The official text is the English version of the website. Any discrepancies or differences created in the translation are not binding and have no legal effect for compliance or enforcement purposes. If any questions arise related to the accuracy of the information contained in the translated website, please refer to the English version of the website which is the official version

Changes to Cost of Living Allowances: A Closer Look

When establishing an expatriate’s compensation package, companies most frequently seek to preserve the assignee’s financial situation at the host location. A popular approach to expatriate compensation is the home-based balance sheet methodology, the intent of which is to match the employee’s home-country purchasing power at the host location. The home-based balance sheet approach assumes that a portion of home-country income is spent on each of the following expenditure categories: taxes, housing, and goods and services. A further assumption is that for each of these expenditure categories, the costs in the host country are going to be different than what they would have been at home:

• Employers typically handle taxes through whatever tax provisions and policies they may have in place: tax equalization, tax protection, or laissez faire. The objective is usually to ensure that the assignee’s tax obligation is no more and no less than if the assignment had not taken place.
• A host-country housing allowance in tandem with a home housing norm deduction is a common method for addressing the housing expenditure piece.
• The home-country spendable income represents the portion of home-country income that an assignee uses on day-to- day purchases. If the cost of goods and services is higher in the host location, companies usually include a cost-of-living adjustment or allowance (COLA) as part of the assignment compensation package.
• Home and host housing
• Miscellaneous Relocation Allowance

The purpose of this discussion is to focus more closely on the third component: the COLA.

Foundational Concepts

Before reflecting more closely on the concept of COLA, its purpose, and its effects on the expatriate’s compensation package while on assignment, it is important to consider the following concepts.

• Home-country spendable income is the portion of the assignee’s home-country income that covers everyday needs, such as food, clothing, transportation, recreation, and so on.
• The cost-of-living index represents a ratio developed by comparing the cost of a fixed market basket of goods and services in the home country against the cost of a similar market basket of goods Vadim Kostovski and services at the host location. One can also view the cost-of-living index as a numerical representation of the host-location spend- able income
• Host-location spendable income is the amount needed by the assignee at the host location to purchase a quantity and quality of goods and services that are similar to what the assignee could afford at home with a given salary level. The host-location spend- able income is comprised of two parts: the amount the assignee would have spent on goods and services at home (home-country spendable income) plus a COLA (if applicable). If one considers the index as a numerical representation of the host-location spendable income, an index of 135.5376, for example, means that for every USD 100 spent on goods and services at home, the host-country equivalent is USD 135.54.

COLA represents the difference between the cost of goods and services purchased at home and the cost of purchasing similar items in the host location. Chart 1, “How Variables Affect COLA,” on page 7, depicts the impact on the COLA by variables such as the exchange rate, price changes, and changes to the home- country spendable income.

• The home-country spendable income, between January 1 and October 1, changed from USD 100,000 to USD 100,600. Home-country spendable income amounts experience movement due to changes in family size, salary, and/or home-country expenditure patterns (as defined by the home-country government).

The index changed by 4.4% in that same period, as a result of the following:

• Exchange rate: The value of the home-country currency increased by 7.4%. Effectively, it means that an assignee needs less home-country currency to purchase the host-location currency equivalent of the host-location spendable income. The home-country spendable income amount remained effectively unchanged.
• Pricing: The host-location spendable income increased by 3.3%, of which 0.6% is the result of changes in the home-country spendable income and 2.7% is the result of costs increasing in the United Kingdom faster than in the United States.

The variances due to pricing and exchange rate are relatively minor in comparison to the effect the changes have on the actual COLA amounts. Recall that the COLA differential is an amount intended as a supplement to the home-country spendable income, converted to host currency.

January 1 Home-country spendable income = USD 100,000 x GBP 0.6356 = GBP 63,560

The remaining COLA in GBP needed to match the host-location spendable income amount =

October 1 Home-country spendable income = USD 100,600 x 0.6829 = GBP 68,700

As can be seen from this example, while the COLA differential changed by an apparently significant amount (from USD 35,538 to USD 29,739, a 16.3% decrease), the actual amount available to the assignees for purchases in the host country remained relatively unchanged in host-currency terms.

The conclusion that can be drawn from the above analysis is that employers should communicate adjustments to assignee compensation packages that occur as a result of quarterly, semi-annual, or annual changes to the COLA in terms of the host-location spend- able income. It is equally important to stress to assignees that the host-location spendable amount is composed of two parts:

• The first part is the host-location currency equivalent of the home-country spendable income amount supplemented by COLA.
• COLA covers the portion of the host-location spendable in- come not covered by the home-country spendable income.

Variables such as the exchange rate and/or changes to domestic and host-country expenditure patterns will influence the amount of the COLA supplement that is necessary. As COLA is the variable portion of the composite host-location spendable income amount, variances due to exchange rate, pricing, and changes in expenditure patterns will be reflected fully in changes to the absolute COLA value.

Vadim Kostovski, an Associate in Mercer’s mobility practice, is based in New York.

Related Articles

• Addressing the impact of exchange rate fluctuations on cost of living allowances
• Managing cost-of-living issues in a pandemic
• COVID-19 update: foreign exchange volatility and COLA
• What Is the Relationship Between Family Size and Mercer Spendable Income Amounts?
• Cost of Living Housing Exceptions - Policy Flaw or Necessity?

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How to Manage the Cost of Expatriate Assignments

As business becomes increasingly global, many organizations will be faced with the need to send employees abroad. In turn, CFOs and their teams will be forced to navigate the financial complexities of these assignments.

An imperative to mitigating the financial risk associated with sending employees abroad is proper management of every aspect of the assignment lifecycle: pre-assignment planning, assignment initiation, and ongoing assignment support. At every juncture, cross-function collaboration between HR, accounting, operations, and others should be a priority.

While determining who should be sent on an expatriate assignment may seem less of a financial issue, CFOs or a financial team representative should have a seat at the table for these early discussions, in order to bring perspective to how taxes and compensation can impact the cost to the company. Additionally, understanding the nuanced factors impacting the potential success rate of the assignee can help them better prepare for the costs that will be incurred.

Taking a more siloed approach may be rather shortsighted and can ultimately result in less-than-satisfactory growth and financial goals for the individual and the company. That’s especially true for companies that make international assignments mandatory for a person to become eligible for an upper-management role.

Keep in mind that planning is not over after the assignment has gone live, as companies can use data analytics to further reduce program expenses. Cost projections and annual accruals or forecasting can increase awareness of the actual, real-time costs incurred and can identify anomalies more quickly, in order to make necessary changes before there’s a significant cost overrun.

Successfully implementing data analytics requires payroll and expense-management counterparts to work closely together to provide timely total cost reporting that can be segmented by level, department, length of assignment, or however the company needs it sliced and diced to make it meaningful.

As taxes are among the largest expenses related to an assignment, companies should perform or outsource analysis around where tax is incurred and whether it can be reduced. This is true for such relatively simple — or seemingly innocuous — things as changing how a benefit is delivered (i.e., paying rent directly to the landlord rather than a cash allowance to an assignee), or it could be applied to remediate larger issues. For example, continued analysis of the specific structure of an assignment in terms of length and location can minimize the overall tax costs. Performing costing scenarios based on current assignment packages and comparing them to alternatives is also helpful. There are some key, fundamental cost questions to ask. For example: Does an increase in housing allowance and a corresponding reduction in a cost-of-living allowance reduce or increase the overall program cost?

Another aspect of post-assignment planning that is becoming more common is around unused foreign tax credits. Some companies look for opportunities for repatriated assignees with significant unused credits to work overseas throughout the rest of the year on business trips, so foreign tax can be recovered without incurring any new tax costs.

Companies that have the highest rate of failed assignments are those that do not have a defined post-assignment planning process. What better way to ensure future success than by learning from repatriated assignees? Often they relish the opportunity to share how great, or how bad, the experience was. When companies provide a constructive way for repatriated assignees to voice their concerns, they tend to be more engaged and willing to be part of the solution.

Let’s be honest, the “global economy” is no longer a forecasted trend that is spoken about in the conditional tense. At the same time, it’s certainly not a tired buzzword. Companies are immersed in both its opportunities and challenges, especially in regard to its impact on the workforce.

As members of the younger generation yearn for international experience early in their careers and current leaders continue to evolve and take on more global roles, expatriate assignments are going to arise with even greater frequency. As a result, global mobility teams comprised of cross-functional leaders should be strongly considered. Their partnership and an information-sharing mandate can help ensure the integration of the lifecycle process and mitigate the risk of assignment failures, thereby reducing the overall cost of the program.

Brad Veltkamp is a senior manager in BDO’s Expatriate Tax Services practice.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

Image: Pixabay, CC0 Public Domain

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Cost of Living Assignment, management homework help

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Ashford University Assignment Submision Week 4 Assignmen

Cost of Living

The City of St. Albans has a unionized police force that is coming up for a contract renewal. The police have one issue: the cost of living increases. During the past 10 years, police officers have received minimal cost of living increases, and this time they want to match what other police forces are making. They claim that their salaries are below the national level. The incoming new police hire earns a salary of $48,200. Using the websites provided in the research section, prepare data and an argument on behalf of the police officers to support their position (from textbook).

This assignment will be written as a PowerPoint slide show presentation ( PowerPoint Tips ). Approach it as if you are giving the presentation to governing board of the City of Albans. You are trying to persuade the board that the police officers need a raise. Your proposal should be:

• 8-10 power point slides
• The note section of the slides should be used to explain the slides.
• At least two recent and credible sources in addition to the textbook must be used.
• All sources must be cited using APA formatting.
• Charts, tables, graphs, etc., may be used.
• The first slide should be a title slide.

The last slide should be a reference list.

Here is the book again..Seaquist, G. (2015). Employee and labor relations: A practical guide . San Diego: Bridgepoint Education

Explanation & Answer

Attached. Name: Institutional Affiliation: Date:     Police officers’ salaries mean salaries nationally are 51% lower than those for other professionals. The police officers operating within the City of St. Albans get annual salaries of around $ 36, 200. On the contrary, new police hires earn around $48,200 annually. Due to such reasons, the St. Albans’ police demand a pay raise.    Police off...

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