Wednesday, March 5, 2014

Understanding Relocation and Cost of Living

Today I spoke to a friend who returned home from an expat assignment, it was his choice to return to his home country and is now battling to adjust to the new standard of living that he finds himself in.

I asked him the fundamental question, did you calculate what you would need to earn on your return?  He said that he had done some basic internet research and got a basic idea but admitted that his calculations were based on on free cost of living websites, his trips back home while on his assignment, his previous costs while living in his home country and what he expected to earn on his return.  He had not considered the extra costs that had arisen during his time away.

It is so important when considering a relocation whether as an expat or moving within your own country, to know that the cost of living will differ from place to place.   The salary you are going to earn is the most important part of the move and how much the change in costs will affect you on a monthly basis.

Use this table to help fill in some of the typical expenses you will experience and include your own list:

Household Expeniditure
Rent / Bond
Utilities (Power, Water, Garbage & Local Tax)
Alcohol and Tobacco
Home phone rental
Internet rental
Mobile phones
Car Repayments
Petrol / Diesel
Car Tracking devices
Public Transport Costs
Maintenance for car
Medical Costs
School Costs
Entertainment / Holidays
Monthly entertainment Costs
Holiday savings
Gym Membership
Personal Care
Miscellaneous Basket
Domesitc / Other Household Help
Dry Cleaning

The figures will vary from person to person for each of these budgeted amounts.  Whether you can stay within your budget and save, or if you exceed these costs depends on the salary offered and the standard of living you select to pursue, which are made through personal purchase choices.  However, what is important to remember is that you will want to maintain the standard of living that you are used to, so the correct calculation for the above budget outline will be of vital importance.

Contrary to common belief, the cheapest places do not always promise the cheapest living costs.

If you compare your salary with the basic cost of living then you could fall into the trap of believing that you will be compensated adequately to cover your budget and still have enough to save. What is cheap and affordable for one person may not be for another. It is for this reason that you need to ensure that you budget correctly and make the right financial decisions before you become an expat or return to your home location.

My friend is still battling to cover his monthly budget and has had to resort to finding extra income. provides four calculators, find the right one for you:
1. Cost of Living Allowance Calculator (COLA): The COLA report calculates how much additional allowance (over and above your current salary) you need to earn in another location to compensate for a higher cost of living, hardship and the exchange rate, in order to have the same relative spending power and as a result have a similar standard of living as you have in your current location.

2. Cost of Living Index Calculator (COLI): The COLI report calculates cost of living indexes for the locations you select using the home location you specify. You can select between 1 and all host locations. You can choose from any one of the 13 baskets or you can choose the overall cost of living index for each location.

3. International Assignment Management Calculator (IAM): The IAM report sets out clear guidelines to make an international assignee/expatriate’s transfer fair and financially viable, taking cognisance of the reward structure and market dynamics of the home and host country. The calculations use the build-up / balance sheet / home based approach and include hypothetical tax, cost of living index, hardship premium, exchange rate, expatriation premium, benchmark housing allowance and benchmark transport allowance. The objective is to ensure consistent equitable treatment and benefits for all expatriate assignees and have a user friendly reward structure to provide seamless coverage for different family scenarios. Recommended for the calculation of the remuneration and benefits for a typical expatriate assignment of a 6 month up to a 5 year duration using your choice of home and host location.

4. Salary Purchasing Power Parity Calculator (SPPP): The SPPP report calculates how much you need to earn in another location to compensate for a higher cost of living, hardship, and the exchange rate, in order to have the same relative spending power and as a result have a similar standard of living as you have in your current location.

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