You hear about it all the time in the news—Cost of living rising! Maybe you think about it on a daily basis—Do I earn enough to cover my standard of living?

But, how often have you thought about the relationship between the cost of living and your business? 

If it’s crossed your mind before, then you’ve probably also wondered about the average cost of living by state. Well, wonder no more—your cost of living by state guide has arrived.

What is cost of living?  

The cost of living is the amount of money an individual needs to maintain their standard of living. Housing, food, transportation, clothing, taxes, entertainment, equipment, and education costs are just some of the basic expenses included in the cost of living. 

Cost of living indexes let you compare basic expenses in different regions. There are cost of living indexes that compare cities, states, and countries. 

Major cities, like New York City, have a higher cost of living than smaller cities, like Albany. To offset these higher costs (e.g., rent), wages are generally higher. 

You can use cost of living information to determine how expensive it is to live and set up shop in an area. 

Why the cost of living matters to your business

Cost of living matters to workers. That means it probably matters to your employees. But, why should your business be concerned about it? 

Let’s name a few big reasons why the cost of living is important to your business bottom line. The cost of living affects:

• Office space expenses
• Business budgets
• Salary expectations 
• Product and service prices 
• Owner’s draw or salary 
• Raise determinations (e.g., cost of living adjustment)

Don’t care about a locality’s cost of living? If that’s the case, you may struggle to create accurate budgets, set reasonable employee salaries, and establish a fair pricing model that customers want to buy from. 

Businesses that don’t put in the time to research all possible expenses may find themselves dipping into negative cash flow territory.   

Not to mention, knowing a city’s cost of living can help you decide where to start your business. Cost of labor is an important factor that goes into our best states to start a business list. 

The 2022 cost of living adjustment was 5.9%—the highest increase in 40 years.

So if you’re struggling with raise determinations, you’re not alone. Our free downloadable guide covers average pay raises, the cost-of-living adjustment, year-over-year inflation, and the disconnect between employer plans and employee raise expectations.

Get My Free Guide!

U.S. cost of living comparison by state

Cost of living in each state data can vary depending on what factors are analyzed (e.g., housing) and who conducts the study. 

For our cost of living comparison by state, we used the following critical information:

• Annual mean wage for all occupations (BLS)
• Average monthly rent (GoBankingRates)
• Value of $100 (GoBankingRates)

The mean wages represent the average wages employees working in the state earn per year. This data is from May 2021. You can divide the annual mean wage by 12 to find the monthly wage amount.

Average monthly rent shows the average overall value of rent in the state (for all unit sizes). This data was compiled by GoBankingRates in 2021. 

The value of $100 captures how much 100 George Washingtons are worth in the state. If the value of a dollar drops below $100, then it does not go as far in that state. This data was compiled in February 2022.  

As you’re looking at the chart, keep in mind that states with a higher mean wage, higher monthly rent, and lower value of a dollar tend to have a higher cost of living. 

Cost of living per state: Lowest to highest list

If you just want the scoop on which states have the lowest and highest cost of living, we’ve got you covered. 

Take a look at the states ranked by cost of living from lowest (most affordable) to highest (most expensive). This data is from a resource provided by U.S. News that uses 2020 data from the Council for Community and Economic Research:

1. Mississippi
2. Arkansas
3. Missouri
4. Michigan
5. Tennessee
6. Ohio
7. Kentucky
8. Oklahoma
9. Georgia
10. Alabama
11. Indiana
12. North Carolina
13. West Virginia
14. Texas
15. Louisiana
16. Kansas
17. Iowa
18. South Carolina
19. Illinois
20. Wisconsin
21. Nebraska
22. Idaho
23. South Dakota
24. New Mexico
25. Florida
26. Pennsylvania
27. Arizona
28. Minnesota
29. Montana
30. Virginia
31. Utah
32. Wyoming
33. North Dakota
34. Delaware
35. Nevada
36. Colorado
37. New York
38. Washington
39. Maine
40. Oregon
41. Vermont
42. New Jersey
43. New Hampshire
44. Maryland
45. Rhode Island
46. Connecticut
47. Massachusetts
48. Alaska
49. Hawaii
50. California

Cost of living calculator 

You might be wondering if there are any tools you can use to readily calculate the cost of living in one state versus another. And if you are wondering it, you’re in luck—there are a number of tools you can use.  

Here’s a list of websites that have a cost of living calculator:

• Salary.com
• Bankrate
• CNN

You can use cost of living calculators to see how far a dollar will go in two different cities. These calculators allow users to enter information like income, current city, and prospective city. 

For example, someone who makes $50,000 per year in Cleveland, Ohio would need to make $112,351.78 in New York City (Manhattan), New York to keep up with the cost of living. 

Keep in mind that the calculators have a limited selection of cities. 

The Bureau of Labor Statistics also has a thorough consumer price index (CPI). The CPI details average prices for items such as food, shelter, transportation, and clothing. 

Once you start your business, you need a reliable way to manage your accounting books. With Patriot’s accounting software, you can easily enter balances, receive and record payments, send payment reminders, and more. Start your free trial now! 

This article has been updated from its original publication date of September 24, 2019.