How to Calculate Cost of Living by State

Whether you decide to move to New York or Texas, Florida or Minnesota, you’ll encounter vastly different lifestyles by U.S. state. The cost of living index also varies quite a bit by state, and is a major factor in determining where to live. This may be especially true if you’re an immigrant who wants to stretch your dollar so you can support friends or family in your home country.

Higher-cost locations may have higher-paying jobs, while more affordable states could have fewer employment opportunities. This reality has kept many working professionals tied to major U.S. cities or more expensive states.

However, with a dramatic shift toward remote work around the world, leaving your current city and relocating to a more affordable locale has become easier.

Before you decide on a new location, let’s take a closer look at how to calculate cost of living by state in the U.S.

How cost of living differs from state to state

How to calculate cost of living: boy holding a wooden outline of the US

You may dream about the bustling streets of New York or the California coast—but before you make the move, consider what that move will cost.

The World Population Review published the “Cost of Living Index by State 2023,” offering an inside look into the states with the highest and lowest cost of living.

The cost-of-living index helps you understand the percentage difference in the cost of living between two locations. Typically, 100 represents the U.S. average.

For example, if one state has a cost-of-living index of 85, it is 15% below the country’s average. If another state has an index of 133, the cost of living is 33% higher than the average.

Based on the World Population Review report, here is a basic cost-of-living comparison, highlighting 10 U.S. states.

States with the lowest cost of living

Most states with a lower cost of living are in the South and Midwest, though of course, exceptions exist. Here are the five states with the lowest cost of living as of the time of this writing:

  • Mississippi: With a cost-of-living index of 83.3, Mississippi has the lowest cost of living in the country (16.7% lower than the national average). This is largely because of the state’s housing index, which is just 66.3. The living wage is just $32,572.80 a year, or about $15.66 an hour, for a single adult with no children.
  • Kansas: The housing cost index is just 72.6 in Kansas, resulting in a cost-of-living index of 86.5. The living wage is around $34,070.40 a year, or $16.38 an hour.
  • Alabama: Alabama has the third-lowest cost of living and second-lowest housing prices in the U.S., with an 87.9 cost-of-living index and a 70.1 housing index. The living wage is $33,092.80 a year, or $15.91 an hour.
  • Oklahoma: This state has a cost-of-living index of 87.9 with low housing costs. The living wage in Oklahoma is about $32,760 a year, or $15.75 an hour.
  • Georgia: Georgia has the fourth-lowest housing index in the U.S. along with lower transportation costs, making the cost-of-living index 88.8. The living wage is $36,691.20 a year, or $17.64 an hour.

States with the highest cost of living

States with the highest cost of living tend to be located on the U.S. coasts. Here are the five with the highest costs of living:

  • Hawaii: Hawaii has a cost-of-living index of 193.3 and a housing index of 315. Because it’s an island, groceries are also very expensive, resulting in a liveable wage of about $45,739.20 a year, or $21.99 an hour.
  • New York: The cost-of-living index in New York is one of the highest at 148.2. Here, utilities, transportation, and groceries cost more than the national average, resulting in a living wage of $45,739.20 a year, or $21.99 an hour.
  • California: No surprise here. California has a cost-of-living index of 142.2, largely because of the state’s housing index of 201.9. In California, transport costs are the second highest in the country, and the living wage is $45,385.60 a year, or $21.82 an hour.
  • Massachusetts: Owing to its booming economy and abundance of job prospects, Massachusetts is a highly sought-after place to live. But the cost-of-living index is among the highest at 135, and the living wage is also much higher at $45,510.40 a year, or $21.88 an hour.
  • Oregon: The cost-of-living index in Oregon is 130.1 in part due to high gas prices and expensive real estate. Around cities like Portland, there is a high demand for houses but a low supply, raising the average price of a home. The living wage is $40,580.80 a year, or $19.51 an hour.

Of course, where you live in a state will also make a difference, as the cost of living is typically highest in city centers and goes down as you move further away.

What is cost of living?

Cost of living is the amount of money you need to sustain a certain standard of living. It includes the price of goods, housing, energy, public transportation, childcare, health care, food, and more.

The cost of living and the quality of life in the U.S. varies significantly from state to state. Where you decide to call “home” could make all the difference between enjoying a comfortable life and living paycheck to paycheck.

So, while an American dollar bill may look the same no matter where you go in the U.S., its value can drastically differ depending on where you spend it.

How to calculate cost of living

Mother carrying her child while shopping at a grocery store

There isn’t an official cost-of-living index created by the U.S. government. However, there are several organizations, like the Council for Community and Economic Research (C2ER), that track the cost-of-living data in different areas.

This means there isn’t a standard cost-of-living calculation. But there are several resources that can either teach you how to calculate cost of living in different U.S. cities or give you access to ready-made data collected and analyzed by economists.

How to calculate cost of living in a state or city depends on the cost of many goods and services, ranging from food prices to health care bills. These living expenses are totaled and averaged to create what’s known as the cost-of-living index.

For example, fuel expenses are usually higher in New York than in Mississippi. As of writing, the regular fuel price per gallon was $3.42 in New York, whereas in Mississippi, it was $2.85. This will contribute to a higher cost-of-living index in New York.

The 2023 Cost of Living Calculator from Best Places shows you how each basic need influences a city’s overall cost of living. When comparing New York City to Chicago, Illinois, the index is 168.6 (NYC) versus 107.4 (Chicago).

This means living expenses are lower if you live in Chicago based on things like the affordability of mortgage payments, property taxes, groceries, and transportation.

USA Today published the value of a dollar in each state using data from the Bureau of Economic Analysis. In California, the value of a dollar is $0.87, while in Mississippi, the value of a dollar spikes to $1.16.

Understanding the value of a dollar can help you learn how to calculate cost of living and create a budget plan to manage your personal finances in a way that lets you maintain a decent standard of living.

Here are some resources to give you a better handle on the cost of living index for each U.S. state.

  • The Economic Policy Institute offers a Family Budget Calculator. This helps families determine the cost of living adjustment in various U.S. cities.
  • The C2ER Cost of Living Index will help you compare living expenses in different areas. For example, according to COLI’s third-quarter 2022 report, Manhattan, New York, had the highest cost of living (more than twice the national average) while Harlingen, Texas, had a lower cost of living (more than 20% below the national average).
  • The Massachusetts Institute of Technology offers a Living Wage Calculator for every U.S. state, county, and metropolitan area.

How cost of living impacts your budget

Senior woman holding an electric bill

Your average income and budget will determine where you can live comfortably.

For example, in Jefferson City, Missouri, the median 2021 household income was $56,781. You’ll likely be able to live within your means there if your income is at this mark or higher.

However, if you were to move to San Francisco, the median 2021 household income was $126,187. Thus, your income would need to be at least that to afford the city’s living expenses.

Once you understand the average cost of living in your current (or future) locale, you can budget your personal finances accordingly.

The Credit Counselling Society provides a budget breakdown for your monthly costs. Although your categories may differ, they recommend the following guidelines when creating a cost-of-living budget:

  • Housing (35%)
  • Utilities (5%)
  • Transportation (15%-20%)
  • Food (10%-20%)
  • Medical (3%)
  • Personal (5%-10%)
  • Debt payments (5%-15%)
  • Savings (5%-10%)
  • Clothing (3%-5%)

To better visualize your budget, create a spreadsheet or utilize one of the many online budgeting tools or apps.

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