When Is Your Cost of Living Too High?

Understand the relationship between your cost of living and income

A young family enjoys their new home in a new city.
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MoMo Productions / Getty Images

Your cost of living is one of the most important factors in your financial success. The more you pay to live, the less you have to save for emergencies or retirement.

However, it might be hard to pin down what your cost of living is and determine whether it’s higher than is ideal. To figure this out, you’ll need to understand what cost of living is, how it relates to your income, and how you can use available tools to answer the all-important question: Is my cost of living too high?

Income and Cost of Living

The more money you earn, the more you can afford in nearly every aspect: a larger home payment, car payment, food costs, utilities, and more. And the same goes for low-income earners: The less money you make, the less you can put toward your home, transportation, and food.

However, how much you can afford depends on where you live in addition to how much you earn. Knowing your area’s living wage calculation helps you understand whether your cost of living is too high.

“Living wage” refers to the hourly wage you need to earn working 40 hours a week to meet the minimum standards of living. This figure will change based on where you live. For example, an adult with two children would have to earn $49.18 an hour in the New York City-Newark-Jersey City area just to meet their basic daily needs. However, that same adult would only have to earn a living wage of $33.91 in Pittsburgh.

So, if you’re wondering whether where you live is too expensive for you, find the living wage for your city or town and compare it to your income. If you earn less than the living wage for your area, your cost of living will likely be too high.

Compare Your Cost of Living to Local Averages

To get a sense of the overall cost of living where you are, crunch the numbers with a cost-of-living calculator. Here are a few reputable cost-of-living calculators:

  • The Census Bureau’s QuickFacts: This national database shows you the average monthly costs of basic expenses like housing and internet. It also gives you an overview of a city’s demographics, education, and household income.
  • Economic Policy Institute (EPI) Family Budget Calculator: The EPI’s calculator compares housing, food, child care, and other costs between different cities, counties, and states.
  • The Massachusetts Institute of Technology (MIT) Living Wage Calculator: This calculator shows a living wage for each city based on different family sizes. It also includes typical yearly costs for child care, housing, transportation, and taxes.

Not all calculators are the same, so you should use a few different tools to get a general idea of the average cost of living in your city or state. 

As you work through these calculators, take a minute to compare your current city’s cost of living to another city in the same region or state. For example, the living wage for a single adult with two kids is about $4.50 higher in the Philadelphia-Camden-Wilmington area than it is in Pittsburgh. While food expenses are the same in both cities, Philadelphia’s typical yearly child care and housing costs are each around $4,000 more than they are in Pittsburgh. These types of in-state disparities may lead you to consider a move to another city to bring down your cost of living.

Is a High Cost of Living Impeding Your Financial Future?

If you can meet all your current financial obligations, you may think your cost of living isn’t too high. However, most cost-of-living calculators don’t consider your financial future. Many describe what you need to earn as a living wage, but they usually don’t include contributions to an emergency fund, retirement, or other investment accounts.

Nearly half of Americans have less than $100,000 saved for retirement, according to a 2020 TD Ameritrade study. But $100,000 won’t get most people very far in retirement—Fidelity estimates you should have saved 10 times your annual salary by the time you’re 67 years old. If you don’t include your retirement plan in your cost-of-living estimates, you aren’t getting a good long-term understanding of your financial situation. You might think your cost of living is fine, when in fact, it’s too high.

You’ll also want to think about your emergency savings. Generally, your emergency fund should be able to cover three to six months’ worth of expenses. But that’s not what most people are saving. Last summer, Acorns reported that 14% of Americans had completely depleted their emergency savings. And that figure doesn’t include the people who didn’t have extra savings set aside to begin with. 

Nearly 70% of Americans would have experienced financial difficulty if their paycheck was delayed by just one week, according to a 2020 survey from the American Payroll Association. This is a sign that many people are dealing with a cost of living that may be too high for their income.

As you consider your cost of living, make sure to consider your future needs. If you can’t fit emergency savings or retirement contributions into your budget, it could be a sign that your cost of living is too high. 

Consider Cost of Living Before Moving

If you’re thinking about moving to a new city, research the cost of living first. If you’re moving for a job, the cost of living in your new city should be as much of a factor in your decision as your potential new salary. After all, if you’re earning more money but have a higher cost of living, you might not feel any better off than you are now.

For example, housing is a major part of cost of living for most people. A good rule of thumb is to spend about 30% of your income on housing costs. Once you venture beyond 50%, you’re likely spending too much on your housing. If you’re offered a job with a company that has offices in Pittsburgh and New York, consider the following data before choosing where to move:

City Median Home Value Median Mortgage Payment Median Rent
Pittsburgh $125,000 $1,178 $958
New York City-Newark-Jersey City $606,000 $2,730 $1,443


If you’ll earn $3,000 a month in Pittsburgh, your rent would be just over 30% of your income. But if you earned the same salary in the New York area, your rent would eat up nearly 50% of your income.

Take a minute to calculate what percentage of your income goes to your mortgage payment or rent. If you find the figure is 50% or more, it’s an indication that your cost of living may be too high.

How to Lower Your Cost of Living

If you’ve realized that your cost of living is too high, you have options.

One of the most effective ways to lower your cost of living is to move to a place where every dollar stretches further. If you live in a high-cost metro area, you might consider moving further out of town or even out of state.

Of course, moving isn’t always easy or accessible for everyone. Other ways to lower your cost of living include:

  1. Create and maintain a budget. Write down much money you have coming in and all the things you have to pay for. Do you have any wiggle room to pay off major debts, like your student loan or car loan, to free up extra cash? Maybe you can cut down on extra spending, like dining out or online shopping. 
  2. Review your bills. Some bills are flexible, like insurance and phone bills. Contact your service provider or lender to see if it’s possible to lower your bills. For instance, increasing your deductible on your car and health insurance can lower your premium.
  3. Stop borrowing money. If you carry a balance on your credit card every month, you’re paying double-digit interest rates. Avoid interest by paying off your balance in full every month by your due date. Not borrowing money also means using cash whenever possible and skipping financing when you buy a car—essentially forcing yourself to stick to your budget.

Instead of lowering your cost of living, you could try to increase your income. Consider asking your boss for a raise, applying for a promotion, or starting a side hustle.