Cost of Living — Definition and What It Means for Your Income
The amount of money needed to cover basic expenses in a specific location.
Cost of living refers to the amount of money required to maintain a standard of living — covering housing, food, transportation, healthcare, taxes, and other necessities — in a specific geographic area. It is typically expressed as an index relative to a national or regional baseline of 100.
Why it matters
Cost of living determines how far your paycheck actually goes. A $70,000 salary in Austin has significantly different purchasing power than the same salary in San Francisco.
Example
If the cost of living index for Austin is 95 and San Francisco is 180, a $70,000 salary in Austin provides roughly equivalent purchasing power to $132,000 in San Francisco.
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Related terms
Cost of Living — FAQ
How is cost of living measured?
Cost of living is measured by comparing prices of a standard basket of goods and services — housing, groceries, transportation, healthcare, and utilities — across different locations.