How to Compare Salary to Cost of Living
Employers and professionals alike fail to place annual salary into the context of current living costs. The median salary 20 years ago does not provide the same amount of goods as the median level today. There is a variety of measures to use in determining whether your salary is sufficient for all your expenses.
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Instructions
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Assess Your Salary With Current Cost of Living Measures
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Study housing and insurance costs throughout the United States to determine how far your salary would go in other markets. Your salary is strong compared to cost of living if you are able to afford a similarly sized apartment and insurance policy in other markets.
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Research the annual salary and benefits of positions similar to yours with competing companies. Your salary should compare favorably to similar job titles throughout the country and grow to meet steadily increasing cost of living standards. Use these comparison tools during salary negotiations to get your employer's attention.
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Account for long-term costs when you compare your salary to cost of living standards. You should use a moderate projection of your mortgage payments, monthly car payments and other expenses you envision for the future to accurately make a comparison.
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Add bonuses, incentives and stock options to your salary as you make a comparison to cost of living. Many employees fail to account for these aspects of their compensation because they are dependent on an employer's success. You should use a best guess or conservative projection for bonuses tied into performance.
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Project your salary's relationship to cost of living standards over the next 5 to 10 years to see the larger picture. You should look at the aforementioned measures of living costs, calculate the amount of growth in prices and project further growth with the resulting percentage. Keep this projection handy if you decide to change jobs or professions.
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Locate the Producer Price Index (PPI) and the Consumer Price Index (CPI) for your area to accurately calculate cost of living. The CPI calculates the cost of products typically purchased by American families while the PPI covers the costs of selling goods for producers. These indexes can be found at the Bureau of Labor Statistics website (see Resources below).
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Tips & Warnings
Create a reasonable monthly budget before you begin to compare salary to cost of living measures. You should review the last 12 months of debits and credits in your accounts to find a median cost of living for your family. You can use this budget as the ultimate arbiter of whether a salary meets your cost of living needs.
