The Astronomical Cost of Living – Bringing it Back to Earth

Financial PlanningPosted on December 13th, 2018No Comments

Written By: Zach Bennedsen, CFP®

You overhear it in restaurants, at the office, on public transit, or at family dinner—it’s on everyone’s mind: things cost so MUCH these days. Whether it’s coming from the generation ahead of you or from a generational peer, everyone wants to wax nostalgic about the cost of living “back in the day.” While the cost of living has certainly gone up, most people conveniently leave out the fact that wages have been steadily climbing as well. However, the increase in wages hasn’t always kept up with the rising cost of living, especially in certain sectors. Today we explore the country’s supposedly astronomical cost of living and see what talking points actually hold true.

The “Astronomical” Statistics

According to the Federal Housing Finance Agency, housing prices rose in every state between mid-2017 and mid-2018. Using the Case-Shiller index, a measure of residential real estate prices, we see that home prices have risen by over 50% since 2012. If we look specifically at San Francisco or Washington DC, the price increase has been even more drastic. Couple this with a less than stellar growth rate of real wages and you have an environment where home ownership and other financial goals, such as retirement, seem always out of reach.

Bringing it Back to Earth

The above statistics don’t exactly paint a rosy picture and can make you feel out of control of your living expenses. However, it is important to contextualize these numbers with a dose of reality—personal reality, that is. Cost of living, home prices, and wage growth figures are presented as averages for an entire nation, region, or city. They are not reported for your individual household. As such, it’s important to acknowledge that your individual situation does not have to be governed by national averages. It is true that you do not control the inflation rate. Nor do you control the housing market or the general wage growth of the country. But you do, however, have some control over your personal wage growth and your personal spending. For example, often ignored in the statistics reported by the Federal Bureau of Labor, your individual wage growth is also heavily influenced by the quality of the work you do. Similarly, you also control your investment and savings strategies, both of which can help you combat the ever-encroaching inflation rate.

When you turn away from generalities and look at your specific life, you may realize you have more control than you may think.

Live Big®

If you still feel like you can’t keep up, you may consider taking a look at your core consumption assumptions of what is “necessary”. If you often find yourself complaining about how much things cost, try to avoid spending your money on those kinds of things. If something doesn’t seem worth it to you, no one is requiring you to buy that item or pay for that experience. No one is requiring you to buy a home with a formal dining room or drive a luxury car. While society pressures us to keep up with the Joneses, we know from previous Digest articles like “Can Money But Happiness?” and “The Science of Spending” that that’s not a strategy for fulfillment. No matter where you live, there are many ways that you can find fulfillment without spending a lot of money: for inspiration, you may take a look at our Live Big list.

So, if you feel like you can’t keep up with today’s astronomical cost of living, that’s fine. No one is asking you to do that. Remember, as we always say, it’s about the size of your life, not the size of your wallet®.

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