What Is a Monthly Cost of Living?

A monthly cost of living is an assessment of the expenses generated by a household for a given calendar month. The term can also be used to refer to the average cost of living found in a given geographical area during the period of one month. In both cases, the idea of determining this monthly cost of living is to identify any changes that may have occurred from one period to the next, making it possible to identify positive or negative trends with the purchasing power parity of the income generated for that same period. Managers of household budgets, city planners, and even financial analysts will calculate this type of living costs to determine what is happening to the standard of living within a given area.

Calculating the monthly cost of living for a household involves accurately identifying all the expenses associated with that household for the month under consideration. This includes both fixed and variable expenses of all types. Major expenses such as a mortgage or rental payment for a living space, a car payment, and the cost of different utilities will often form the basis for this type of assessment. From there, expenses such as the cost of food, clothing, insurance, gasoline, and any other expense that is incurred will be accounted for in the calculation.

A similar process is used when assessing the monthly cost of living for a larger area, such as a municipality or a region. Here, the focus is on identifying the average cost of goods and services considered essential to enjoying an equitable standard of living. By making this type of calculation for each month, it is possible to determine if some type of shift in the economy such as a period of inflation has exerted a significant impact on ability of residents to live equitably, or if their purchasing power is being eroded as the average price index for essential products continues to rise.

For both households and governmental leadership, understanding what is happening with the monthly cost of living makes it easier to identify specific actions that can be taken to take advantage of positive trends while also minimizing the impact of negative trends. For example, if the assessment reveals that the cost of living for the household increased due to changes in utility costs, there is the opportunity to rework the budget to increase allocations for those utilities, or to identify ways to reduce usage and bring those costs back into line, without placing any additional stress on the budget. This same general approach can be used for a municipal budget, effectively identifying which factors caused an increase in the monthly cost of living, then taking steps to deal with those issues in the most expedient way possible.