Geographic Buying Power

The Geographic Buying Power calculator computes the approximately equivalent cost in two locations based on the cost index in both places and a salary in one place.

• (CI₁)  This is the Cost Index of Location 1.
• (CI₂)  This is the Cost Index of Location 2.
• (C)   This is the Cost item or service in Location 1.

Geographic Buying Power: The calculator returns the equivalent cost for Location 1 in U.S. dollars.  However, this can be automatically converted to other currency units via the pull-down menu.

General Information

The Geographic Buying Power equation is used to compute the equivalent living costs and salaries in different cities depending on their geographic cost-of-living index numbers.

The Cost of Living Index can be found HERE. Cost indices are provided for:

• Total Cost of Living
• Rent
• Groceries
• Restaurants
• Local Purchasing

EXAMPLE

John earns $40000 in Omaha, Nebraska. How much will he need to earn, in comparable buying power,  to accept working in Chicago?

Solution. 

Chicago (123 x $40000) / Omaha (93.3) = $52733.12

APPLICATION

This equation is used to inform decision-making when considering changing jobs or moving to work in a different geographic city. It is important to research on the salary levels in that city. Often, cities with higher salary levels also have higher living expenses in terms of prices of food, rent, social amenities etc. 

What appears to be a big salary may in fact translate to a lower standard of living than in a geographic area with lower salaries and lower living costs.

REFERENCES

Kapoor, Jack R., Les R. Dlabay, and Robert James Hughes. Personal Finance. Boston: Irwin/McGraw-Hill, 1999. Print.