How To Calculate Your Cost of Living
Where has NYPFGuy Been?!?
So the last month and a half has been pretty crazy to say the least. After having a relatively tame New Year’s celebration, I packed up my new (used) car and drove from Chicago to Los Angeles over 4 days with my dad. We saw the fly-over states, drove through the Rockies, cruised through the Southwest desert and then finished at Hermosa Beach in the urban sprawl of Los Angeles.
My new (used) Rav4 getting a workout across the Rockies
Over the past month, I’ve really been digging into my new job. As a technical sales rep, I have a lot to learn in the product/technical sphere, but I also need to meet all of my customers and colleagues in my new territory. It’s taken a lot of mental energy to dive into my new job, so I haven’t really had the energy to write.
A West Coast sunset at Hermosa Beach
Oh yeah, did I also mention that I’m living in a new city and needed to find a place to live? So I’ve also spent the past month bouncing between AirBnB’s and waiting to move into my new apartment. Pile that on top of trying to build a new network and social life, and it’s been a pretty exhausting (and also quite exciting!) month.
But I’ve officially been a resident of the Great Los Angeles area for just over a month now, so feeling a bit more settled and rested, I’m ready to jump back into the blogosphere.
View from a hike up in the Palisades
So here we go! This is something that was relevant to me when I was getting ready to move out to California, so I thought I’d write about it as it can be a helpful method when one is looking to make a big change in life that could affect finances.
What is Cost of Living?
It’s pretty simple. It’s what it costs you to live, whether it be weekly, monthly or yearly.
The reasons we may need to calculate our cost of living can vary, but if we are making a big life change such as moving to a new city, taking a new job, buying a home, then this can be a really important number to know.
This post is purely self-serving because I had to do this when I was getting ready to make the move from Chicago to Los Angeles, but many of my readers are younger and in the stages of life that may require a move, so hopefully this resonates!
Here are a few questions I’ve asked myself over the past few months:
How much was it going to cost me to live there?
What does it cost for an apartment?
How much money do I need to get from my new job to be able to pay for all of this?
All of these questions crossed my mind, so I went out and found answers to all of them, essentially figuring out how much it was going to cost me to live on a monthly basis in my new city before I even moved.
Here’s How We Do It
Typically I would recommend figuring out expenses and savings from income. If you already have a job and live in a relatively stable fashion, such as having an apartment lease or own your own home, then use your income to figure out what your cost of living is.
Basically, whatever you income is minus whatever you save each month would be your cost of living on a monthly basis:
Know your income – Savings % = Spend the rest
But how about if you are moving somewhere new or taking a new job? How do you go about figuring out how much money you need to make in a new city, or what we can afford for our living situation in a new neighborhood?
Here are the steps that I followed to determine my cost of living:
– Check out Craigslist or Zillow to figure out how much you’ll need to spend on rent to get an apartment or home in your desired location. Let’s say $1000/month as an example with $100 for utilities
– Your housing should be no more than 20-30% of your budget, which is standard rule for sound finances. In big cities, you’ll probably be looking at closer to 30% because real estate is expensive, but in rural or smaller cities you could easily get under 20%
– Based on that, multiple your rent plus utilities (estimate at $1100) by 3.3 for 30% of budget, which gives you $3630
– For 20% of budget, multiply your rent by 5, so $5500
– So your take home pay should be between $3630-$5500/month. Closer to $5,500 will be much more comfortable and allow you to get closer to 20% housing expense, but $3,630 will still have you in an appropriate range
– Then you can probably find a tax calculator online, but at that income level you’d probably be paying 20-25% in taxes. Multiply $3,360 x 12 months and then divide by 0.78 (22%) for taxes (trust me on that one haha)
– This means your minimum income to afford this lifestyle would be $52,000/year
– We can then breakdown cost of living even further. With $3,630/month income, and $1,100 housing expense, you would have $2,530 remaining for the month. If you wanted to save the 20% of your income (minimum standard for sound finances), then you would save $726/month ($3,630 x 0.20) and have $1,804 to spend on the rest of your expenses
And that would be your cost of living!
Keeping it simple for this first blog post back. Leave a comment or send me an email if you have any questions!
NYPFGuy
