How to Calculate Cost of Living Index
With the wealth of modern resources, figuring a cost-of-living index has become relatively simple. Kiplinger.com's Complete City Rankings says that 2009's least expensive city to live in was Pueblo, Colorado, with a cost-of-living index of 83 and a mean income of $39,570. The most expensive city to live in was Honolulu, Hawaii, with an index of 165 and a mean income of $64,355. Every year Kiplinger updates these numbers. The U.S. Department of State also publishes a quarterly international cost-of-living index, which can help you calculate the cost of living anywhere in the United States.
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Instructions
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Select two cities to compare. In order to get a true calculation you will need to pick a city to compare against. For this example, we will use Washington, D.C., for a U.S. city and Oslo, Norway, for an international city.
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Look up the cost-of-living index for Washington, D.C. at Kiplinger.com (see Resources). The index is 136. This step is unnecessary in the calculation since the International Index is based on Washington, D.C. However, it is important to note that Washington, D.C., is also one of America's most expensive cities to live in.
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Look up the cost-of-living index for Oslo, Norway. The index is 155.
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Calculate the basis. The basis is the higher index value divided by the lower. In this case the basis is 155/100 or 1.55.
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Calculate the cost of living in the United States compared to Oslo, Norway. Let's say your current cost of living is $155,000 in Oslo. Dividing that by the index basis ($155,000/1.55) equals $100,000 which is how much you would need to live in the United States.
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Calculate the difference in dollar amount and percentage. The difference is $55,000 (155,000 - 100,000). This means that it costs 55 percent less to live in the United States compared to Oslo, Norway. Calculate the percentage by dividing the difference by $100,000. You can substitute any city with an index on the DOS chart to achieve the same results.
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Check your results with a cost of living calculator. There are many calculators, but few with international capabilities. See Resources for two links.
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References
Resources
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