The cost of living is the income required to provide basic necessities like food, clothing, and shelter. It is important for individuals to determine how much money is needed to secure basic needs and for municipalities to understand the nature and scope of services provided. The cost of living is not static and changes based on economic conditions.
Cost of living is the amount of income required to provide an equitable standard of living. At the core of this standard is the need to provide food, clothing, and shelter. In many cultures, other items are also considered necessities and are included in the calculation when trying to determine the average cost of living in that area.
Assessing the current costs of living in a given area is important for a number of reasons. For households, identifying how much money will be needed to secure basic needs plays an important role in choosing to work in a particular industry. Ideally, a full-time job is enough to pay a monthly rent or mortgage payment, cover utility costs, buy food for three meals a day, and buy clothes for household members. Increasingly, the costs of living in some places, particularly metropolitan areas, make it necessary for more than one individual in a household to obtain employment, or for a single person to establish a side source of income in addition to a full-time job.
Municipalities consider the cost of living when participating in urban planning. Understanding what it costs to maintain an equitable standard of living in the area allows one to identify the nature and scope of services provided by local government agencies. The figure also helps municipalities determine tax structures related to sales tax on purchases like food and gasoline, and even how to create a schedule for property taxes. Even issues like planning housing developments or designing incentives to attract new businesses to the area must take into account current costs of living and how residents would respond to those opportunities.
It is not unusual for people to look for places where the cost of living allows them to enjoy more benefits based on the amount of income they generate. For example, a retired couple may choose to live in a smaller city or town where housing is less expensive, food is cheaper, and taxes are lower. Doing so makes it possible for your retirement income to cover all the essentials and still have income available for activities and purchases that are desirable, but not necessary. In the same way, a young person who is just beginning to establish himself in a career will often choose to share living space with others as a means of keeping living expenses to a minimum while still having a decent place to live.
The cost of living is not a static figure that stays the same year after year. Changes in the costs of basic living necessities result in a change in the amount of income needed to maintain a given standard of living. During periods of inflation or recession, households have to make adjustments based on the impact those economic conditions have on both the cost of essentials and the impact on sources of income.
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