Cost of Living vs. Standard of Living: Why the Difference Matters

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If college graduation is around the corner, you've probably been exploring your employment options. It's likely that one of your biggest concerns at the moment is compensation. After all, you have student loans to repay. But only focusing on the starting salary of each job opportunity may cause you to overlook two factors that could influence the value of those earnings: cost of living and standard of living.

Here's what you should know about these often confusing but critical terms.

Merriam-Webster Dictionary 

  • Definition of cost of living:
    the cost of purchasing those goods and services which are included in an accepted standard level of consumption
  • Definition of standard of living:
    1: the necessities, comforts, and luxuries enjoyed or aspired to by an individual or group
    2: a minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances

Cost of living varies widely across the country.

Cost of living calculators typically compare housing, food, transportation, entertainment, and health insurance costs between two cities. When the money you earn exceeds the cost of living in a particular location, it often means you can experience a higher standard of living. 

For example, an individual residing in Denver, CO who earns $50,000 in pre-tax household income would need to make $65,603 to experience a comparable standard of living in Los Angeles, CA.

A standard of living is often tied to earnings, geographic location, and lifestyle.

The measurement is not concise, as people define levels of wealth and comfort differently. But this doesn't mean you can't determine whether a particular region is a good fit for your income. 

If the pay at a potential place of employment would leave you with plenty of surplus income, you can use those funds to enjoy a particular lifestyle, such as affording an upscale living space. It should then be of no surprise that regions that typically have a high standard of living also have a high cost of living.

Your career choice will influence your standard of living.

Simply because one area of the country pays workers more than in other locations, that isn't reason alone to accept a position. Cities with a higher average salary may pay more to attract workers in high-demand sectors. But that doesn't mean all local industries will benefit from this salary bump. 

For example, a city might pay $10,000 more than the national average salary across industries. However, due to the high cost of living, it still may not be enough to meet basic needs for someone who lives in that city but works in an occupation with low demand.

Living comfortably means different things to different people.

Even so, you should evaluate your income and lifestyle spending to assess whether your wages will be enough to keep you in control of your finances or whether your finances will control you. 

Generally, you're considered to be living comfortably when you have enough to cover your basic expenses and still have funds left over to achieve your financial goals, such as saving for a down payment on a home.

Spending less is a smart financial move, but it's unlikely to dramatically affect your cost of living.

Trimming expenses often helps plug spending leaks, but you can't out-save a high cost of living. If your earnings fall well below the cost of living in a certain area, a position with a comparable salary in a different geographic location might offer the best solution.

Your income becomes less critical when you consider its value based on where you live, how you define work/life balance, and your career stage. As you advance in your career, you'll likely earn more and be able to afford to live in a more expensive city while still experiencing the lifestyle of your dreams. But don't forget that wherever you are on your career journey, pay close attention to the cost of living to ensure your wages will match your expected standard of living.