Your cost of living is a metric of how much it costs to cover your basic expenses, like shelter, groceries, and healthcare. It’s an important financial figure to understand, as it lets you know much you must earn to feel safe and secure.
Unfortunately, the cost of living has never been higher. Many Americans are finding it hard to keep up amidst low wages and record inflation.
How Can You Tell if Your Cost of Living is Too High
There’s no universal cost of living (COL) that works for everyone. What works for you might not work for your neighbour, co-worker, or friend.
An affordable COL depends on your income. The more money you make, the more you can afford to put towards housing and other everyday expenses. But merely affording the basics isn’t the only benchmark. You can manage to cover these expenses and still face a COL that is too high for comfort.
One popular budgeting method suggests you shouldn’t spend more than 50% of your income on your essentials, leaving the other 30% on wants and 20% on saving.
Getting your bills down to 50% exactly isn’t as important as finding balance in your budget. Without this balance, you’re likely spending too much on your COL.
A cost of living that takes the lion’s share of your paychecks comes with certain challenges:
1. Unexpected repairs and expenses
2. Future planned expenses
Affording the Unexpected
Let’s say your water heater stops pumping out hot water, and it would cost $560 to get it back to working order. Remember that your COL is so high that most of your paycheck goes towards the necessities, leaving very little for savings.
Six in 10 Americans don’t even have $500 in savings; many of them would have to borrow money to cover such an unplanned expense.
If your savings fall short, you may turn to online loans for help as well. Going online makes it easy to research your options, as a single Internet search brings up millions of hits. But be careful when you start to apply. You only want to apply for legitimate online loans provided by licensed financial institutions.
In emergency situations, borrowing legitimate loans online might make sense, but even the best line of credit isn’t the perfect stand-in for emergency savings.
Saving for the Future
A healthy budget should help you afford your immediate needs and your long-term dreams. You need high-yield savings and long-term investments to prepare for your future’s biggest purchases.
Education costs, real estate, vacations, renovations, and retirement are just some goals that a balanced budget can help you achieve.
A steep COL takes up all the extra room in your budget. You’re spending so much just covering your bills that you can’t set aside some cash for a future day.
How Can You Lower Your Cost of Living?
There’s no getting around it — lowering your COL requires cutting your spending down to size. Unfortunately, the usual money-saving tips (like skipping Starbucks and avoiding takeout) won’t work.
Instead, you’ll have to target your essentials by using less energy to lower your bills, planning meals and couponing to spend less on groceries, and comparison shopping to find cheaper insurance.
The single best way to lower your COL is by downsizing or moving to a cheaper neighborhood, county, or state. Consider this your long-term goal as you reduce your spending in other ways.