How to Lower Your Cost of Living

Big changes make a major impact

Two roommates stand in their kitchen, chatting over coffee
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Cost of living is the amount of money it takes each year to maintain your lifestyle. A number of different factors contribute to your cost of living, including where you live, what kind of home you live in, and how far you commute to work. 

If you find yourself struggling to make ends meet or simply want to save a little more money, you can make changes to help lower your cost of living. Learn the various measures you can take to reduce your spending in a few key areas, resulting in a major effect on your overall budget. 

How Cost of Living Is Calculated

The average cost of living is calculated each year by dozens of different organizations, like the Economic Policy Institute (EPI), the Federal Reserve Bank of St. Louis, and the Council for Community and Economic Research (C2ER). Although their methodologies vary slightly, most use similar factors to identify the cost of living in a specific location, including:

  • Housing 
  • Food 
  • Child care
  • Transportation
  • Health care
  • Other necessities
  • Taxes

Organizations calculate cost of living by finding prices for a representative sample of goods and services, all of which are necessary for maintaining an average lifestyle. These expenditures are totaled, averaged, and used to create indexes to help compare different locations in the U.S. You can do the same for your own lifestyle, and take into account how much of your budget would be consumed by specific categories each year. 

Fortunately, most of these costs are ones we can control to some extent, although they’ll likely always be part of your budget. If you want to reduce your cost of living, these life changes will have the biggest effect on your spending.

Move to a Cheaper City

One of the biggest changes you can make to lower your cost of living is to move to a new location where those costs are simply lower. For example, although you’ll always pay some taxes, you could move to a state without income tax, such as Texas, or one without sales tax, like Oregon. 

But even within a given state, there’s a vast disparity between the least and most expensive cities, with plenty of middle ground in between. While large cities offer certain benefits, such as more job opportunities and easier access to transportation, you may find yourself paying for those benefits in the form of more expensive housing and child care. On the other hand, smaller towns may have more affordable housing, but could lack the infrastructure and resources you’re used to having in cities.

Cost of living calculators can help you estimate how these expenses might change based on where you live, and sometimes even allow you to compare the costs of living in specific cities. Try plugging your current location into the free calculators from the EPI or the Federal Reserve Bank of St. Louis


Keep in mind that if you choose to move to a less urban area, your salary may change as a result. Since these indexes consider that factor, though, you may still come out ahead. 

Carpool or Shorten Your Commute

Before many of us began staying home more in 2020, Americans drove more than 3 trillion miles per year. Switching your commute to public transportation may be a cheaper option if you live in an area with an active transit system, such as New York or Chicago. However, outside of major urban areas, taking transit may make your commute much lengthier than it would be by car. 

To save money without sacrificing your time, find a carpool buddy and split the cost of driving to work. Household transportation costs averaged $10,742 in 2019, according to the most recent data from the Bureau of Labor Statistics, and driving only half the time could offer significant savings on insurance and fuel. 

Shortening your commute can achieve the same effect, and you’ll also get the added bonus of extra time in your day. Consider moving closer to your job, asking to work from home a few days a week, or searching for a new job closer to home. 

You could also opt to bike or walk some or all of the way to work. While it may take longer, it’s free, reduces your carbon footprint, and may even allow you to cancel a gym membership—another win in the quest to lower your cost of living. 

Downgrade Your Home or Car

Although it’s tempting to try to keep up with the Joneses, you’ll save a lot more money by choosing a home or car that’s less flashy and more practical. Downgrading your home may involve moving to a building with fewer amenities or to a neighborhood a little farther from downtown. Downsizing is another option, and while it may feel like a tight squeeze, it’s likely feasible. Two-bedroom apartments cost 15% more on average than one-bedroom apartments in the U.S., according to data from RentCafé, so the savings could be significant.

When it comes to vehicles, SUVs and trucks incur higher insurance costs and use more gas than smaller sedans. Unless you regularly need the space these vehicles provide, downsizing could save you a bundle each year. The same goes for sports cars and luxury vehicles—not only do they cost more to buy, but their maintenance can be much more expensive. Downgrading to a more practical vehicle could save you thousands in gas and repair costs each year. 

Get a Roommate

Getting a roommate could be a good alternative to moving—and it might offer even bigger savings. In San Jose, for example, the average rent for a two-bedroom apartment is $3,567. Splitting that cost with a roommate is a much better deal than paying for a one-bedroom apartment ($3,006 a month) on your own. Sharing a two-bedroom place could save you $14,670 a year—and that doesn’t count how much you’ll save by sharing household utilities. 

Reduce Your Energy Usage

While this is a minor change to make, it can save you a significant amount. Understanding how to manage your electricity consumption could help you save up to $500 each year without making any serious sacrifices. The U.S. Department of Energy offers tons of energy-saving tips and strategies you can follow, including:

  • Invest in a programmable thermostat so you aren’t heating or cooling your house when you aren’t home.
  • Learn peak and non-peak usage rates from your electricity company, and run energy-intensive appliances like your dishwasher during non-peak times.
  • Upgrade to energy-efficient appliances. Be sure to check for any rebates your state may offer to help offset the cost.
  • Make sure your home is properly sealed and insulated so that air you’ve paid to heat or cool isn’t escaping through gaps and leaks.

Reconsider Your Budget

Sure, you see this recommendation a lot, but that doesn’t make it any less important. Your spending patterns may leave plenty of room to save money, especially in a couple of key areas. 

Review your credit card statement for any automated payments, including gym memberships, streaming services, and those pesky “free trials” you swore you’d cancel before the deadline. The average American has subscriptions to three streaming services, according to a 2019 study. Take a look at each monthly expense and consider whether you truly need it, or whether you could use those dollars toward something else. 

If it’s been a while since you looked at your home and auto insurance policies, it may also be worth requesting a few quotes from competitors. This is especially true if you’re driving less than you used to, your teen driver recently moved away for college, or you’ve made changes to your home since you last renewed your policy.

The Bottom Line

If you’re trying to find extra money in your budget, try one or more of these strategies to significantly reduce your cost of living. While some of the most effective options, like relocating to a cheaper city or downsizing your home, require a significant amount of time and effort, they have the potential to save you tens of thousands of dollars each year.