No matter what the real situation is, most people consider their cost of living high and this is one of the great factors that prevent the realization of greater investments and achievements. If it is really high, the potential for equity growth is considerably reduced. But would you like to know the other point which makes up a greater portion of fatality in this management? It’s not knowing the fact that what their cost of living is.
It’s time to end this doubt and ensure that plans have a realistic starting point. For this purpose we have gathered in this post all the information one need to know about how to calculate the cost of living and what factors influence it.
What does your cost of living represent?
First of all, it is necessary to understand that the cost of life is different for everyone and is in accordance with the situation they live in. After all, each individual has different needs, values, styles, incomes and different life stages. These can be, the beginning of adulthood, the arrival of the first children, moving to another country or retirement. In a practical way, it is the sum of expenses of the individuals, that is, goods and services needed to live within their demands.
When we consider the cost of living in a city, the costs inclusive will be more comprehensive.
These costs include the average values for housing, food, transportation, health, leisure and welfare in the given situation. With this, it is very common to find indices and examples of costs of life of some cities around the world.
But, thinking exclusively about each person’s lifestyle, such information is transformed into specific numbers. These numbers entail apartment rent close to work, children’s monthly school fee, grocery shopping, home insurance, fuel, internet package, others. Thus, it is possible to do this calculation individually and make a comparison with the average of demographics, psychographics and other references that are presented in the market.
How can economic factors affect it?
Those who already apply values or follow this market know that the application options have specific economic indicators that affect their ability to generate better results.
Thus, indicators such as the benchmark rate, and others are well known. In the news and specialized websites, the variation of each of them is also seriously monitored. Each of the indicator remunerates a different type of application. Therefore, it affects the whole dynamics of the prices of products and services that influence the cost of living of people.
What is the role of inflation in your daily life?
Inflation is the name given to the price variation identified in a given period. In a basic way, it is coordinated by the law of supply and demand in the economy. If many consumers are interested in a product, the trend is for their price to increase. If the quantity available for sale is low, the negotiated amount will also be higher.
Indexing, another term of the economy, also has its role in price variation. It explains the action of companies in redefining the value of their products using as reference the one that was previously offered. Thus, if a product’s price increased because of limited supply, the indexation will make its adjustment based on the value of that typical period. The indexation will not consider the fixed costs involved in the current situation.
The exchange market, which defines the value of each currency in relation to the others, can also affect inflation. This is because some products or part of them are traded in foreign currency.
To manage the influences, there is the management of the government. If it is mismanaged, it receives less than it spends, and to pay its expenses, it emits more money. As a consequence of this strategy, the real depreciates in relation to the quotation of foreign currencies.
Inflation, therefore, does not affect the cost of living of people, which can be considered a reference of values for a given pattern. It interferes with purchasing power, which is how much an individual can actually buy with a certain amount of money.
Calculating cost of living
So far mechanisms of inflation is clear along with the fact that the cost of living does not changes. It is rather the purchasing power of each individual that fluctuates. We have another element to further personalize this analysis: there is a difference between personal expenses and individual inflation that needs to be clarified.
Personal expenses are those carried out in the daily life and that can be occasional or not. It is essential that they be noted and monitored. Individual inflation is the one that considers all those previously related factors, such as demand and government policies, in a given period.
So, after understanding this difference, the next step is to perform the calculation of the cost of living:
- Understand that the cost of living to be calculated is individual and according to the current experience, whether in a family group or individually;
- Conduct a detailed study of all the expenses involved in the routine and then separate those that will be effectively used;
- Understand the moment of the country and what economic factors are directly affecting the performance of your earnings and expenses;
- Use tools such as benchmarks and reports issued by specialized and trusted bodies;
- Promote improvements so that it is even more qualified and strategic.
The most correct move after figuring out your cost of living, of course, is to consider what expenses can be cut off from the family budget.