Monday, August 12, 2013

What Exactly Is And Why Would I Use A Cost Of Living Calculator?

After speaking to a variety of people on the ground it was interesting to find out that very few understood the concept of using cost of living calculators or realized the importance of knowing how it can affect the negotiation of an expat salary.

What is cost of living?
This is the cost of maintaining a certain standard of living when comparing the cost of living between different locations. The objective is to calculate the difference in the cost of living expressed as and index (e.g. dividing the cost of living in location A by the cost of living in location B which may result in an index of say 140, this means that Location A is 40% more expensive than Location B) This would mean that a person who moves from Location B to Location A would need to earn 40% more, to have the same standard of living in Location A as they currently experience.

The difference in the cost of living between two locations is NOT the same for everybody, it is different for every basket group, i.e. the difference in housing costs is not the same as the difference in grocery costs or transport. Take the cost of living in Hong Kong as an example, Hong Kong is extremely expensive if housing is included in your basket selection, however the cost of living is only slightly above average if housing is excluded. It is therefore critical to be able to select which basket groups/expenses are applicable when calculating the cost of living difference between two locations.

Internationally comparable cost of living data is crucial to forming sustainable expatriate pay policies and monitoring progress. Market exchange rates give misleading comparisons because they do not reflect salary purchasing power differences.

Which calculator is right for you?
Do you want to calculate the equivalent salary in another country?

Salary Purchasing Power Parity Calculator

Do you want to calculate the cost of living allowance for another country?

Cost of Living Allowance Calculator

Do you want cost of living indexes for several international locations?

Cost of Living Index Calculator


There are of course a variety of ways you can obtain the above information, here are a few and why using data that has been verified is the obvious choice:

1) You could Do It Yourself: There is raw data via online shopping, official governmental and non-governmental organisations, as well as many statutory and non-statutory statistical organisations etc, all of which is difficult to make sense of if this is not your area of expertise. This information is time consuming to collect and difficult to maintain in the long-term.

2) You could use Consultants: There are consulting groups who serve corporate clients (not individuals) charge annual subscriptions which can be expensive. The traditional consultant approach takes a long time when reports are prepared manually and tend to provide more detailed information than clients actually require.

3) Why pay? There are Free Websites: There are free websites who rely on users adding price information and in return provide free average prices and indexes. These sites tend to be error prone. Prices are often submitted for incorrect quantities or in the wrong currency. Free sites allow anybody to submit data. If you are a professional / management level expatriate, the cost of living experienced by local workers will be very different to your cost of living.

4) Xpatulator.com:

Firstly: We manually collect and quality assure the cost of living data ourselves. Our quality is not only better than the free sites, it is also calculated based on the cost of living applicable to international professionals / managers.

Secondly: We organize the data into easy to use basket groups and allow you to select the baskets that are applicable so as to ensure the cost of living calculation is based on the actual costs paid from the salary.

Thirdly: You do not need to wait for a consultant to prepare your report. Our customers are both corporates and individuals. We understand your need for accuracy and speed. We deliver your report in less than 60 minutes. We are open 24 hours a day

Cost of living and hardship (quality of life) data is updated quarterly. Current data is as at 1 July 2013 based on data collected during the past 12 months.

This article may be freely copied as long as reference is made to http://www.xpatulator.com/