How to Calculate the Cost of Living Increase
How to Calculate the Cost of Living Increase. The cost of living is the amount of money it takes to attain a certain level of utility or a certain standard of living. A cost of living increase is the increase in the amount of money it takes to maintain a given standard of living. Cost of living increases are an important consideration for money managing and retirement planning, since it often takes more money to maintain a certain standard of living over time due to increases in prices.
Select the time period for which you want to compare the cost of living. For instance, you could find the cost of living increase between this year and last year.
Add up the total cost of expenses you paid during an average month in the first time period. For instance, if you were comparing this year to last year, add up your average monthly expenses from last year.
Add up the total cost of all the expenses you paid in an average month for the second time period. If you are comparing last year to this year, add up your current monthly expenses.
Subtract the amount you calculated in Step 2 from the amount you calculated in Step 3. This is the increase in your monthly cost of living between the two periods. If your standard of living or spending habits changed significantly between the two periods (for example, you have a bigger home, new car or go out to eat more often) the cost of living increase calculation may not be meaningful.
- Cost of living increases can only be calculated for time periods in the past up to the present.
- The U.S. Bureau of Labor Statistics releases new consumer price index (CPI) data on a regular basis. The consumer price index is a measure of the increase of prices in an economy over time. CPI data can be used as a rough estimate of the increase in the cost of living over time.
- Kenyon College: How to Calculate the CPI
- Bureau of Labor Statistics: FAQs: Is the Consumer Price Index (CPI) a Cost-of-Living Index?