It's well known that California, New York and Hawaii are pretty expensive places to live: housing prices are way above average, and even basic services can cost a lot more than in other parts of the country. If you're looking for a place where goods and services are more affordable, it's not only useful to know which places to avoid it's also best to know which places to seek out. But, how do you know which states will allow you to stretch your dollar the most? (For more, check out The Most Affordable Cities To Live In.)
TUTORIAL: Buying A Home
There are different ways to judge where you'll get the most for your money. CNBC gave it a shot by rating the best states for business. Basically, CNBC ranks the states that are best for doing business according to several categories, including the workforce, quality of life, economy and cost of living. Specifically within the cost of living category, the top five ranked states are Kentucky, Tennessee, Oklahoma, Arkansas and Texas.
But why are these states so inexpensive? Here's a look at how these five places fare regarding different statistics and cost of living breakdowns.
Cost of Living by Item
A great way to illustrate the cost of living in a certain area is to compare how much certain common items and services cost from place to place. Bankrate.com has a cost of living comparison calculator that allows users to choose two cities, or metropolitan areas, and see how costs for certain things compare to each other. Instead of trading commodities online, this sheet takes you through how you invest in commodities in your everyday life. Here's a breakdown of the five states mentioned above:
Typical home price: $258,942
Hair cut: $12.88
Gallon of gas: $2.64
Half-gallon jug of milk: $1.60
Typical home price: $209,386
Hair cut: $10.61
Gallon of gas: $2.54
Half-gallon jug of milk: $1.67
Typical home price: $238,980
Hair cut: $12.41
Gallon of gas: $2.54
Half-gallon jug of milk: $1.98
Typical home price: $245,801
Hair cut: $10
Gallon of gas: $2.63
Half-gallon jug of milk: $2
Typical home price: $232,059
Hair cut: $17.54
Gallon of gas: $2.61
Half-gallon jug of milk: $2.29
Because the calculator is based on areas and not states, the state capital or a major, populated area was chosen for each state. While it's used to represent the state, it's not representative of the entire state's costs or an average of the state's prices. (To read more, on the cost of living, see What Will The Cost Of Living Be In 2012?)
Instead of breaking it down by item, if you look at the average cost of living in 2010 in various urban areas as reported by the United States Census Bureau, of the lowest 15 indexes for cost of living, only three of the cities aren't found in the five states being discussed. Texas dominates the list, accounting for four cities of the 15 (Harlingen, McAllen, Brownsville and Wichita Falls), with Oklahoma following with three cities represented on the list.
Consumer Price Index
The Consumer Price Index (CPI), is a measure of the weighted average of prices of a basket of consumer services and goods, including food, transportation, etc. How is this relevant? Well, while the government's cost-of-living-index reflects both the change in prices for goods and services and the environmental or governmental factors that may affect the consumers' well-being, the CPI mainly portrays the change in prices alone, according to the Bureau of Labor Statistics (BLS).
It's not as comprehensive, but it's still worth looking at to see how the CPI differs across the country in comparison to the national CPI. The CPI for All Urban Consumers, as reported by the BLS, was 226.23 in November 2011, but the CPI measurements also breakdown into regional indexes. The CPI for the Southern region of the U.S. (which includes the five states being addressed) was 219.961 in November 2011, a noticeably smaller number compared to the national index. Compare both of these numbers to the Northeast, which had an index of 242.652 in the same month.
The Bottom Line
When looking at the government data to confirm certain claims about the cost of living, it seems Kentucky, Tennessee, Oklahoma, Arkansas and Texas are inexpensive to live in compared to other areas of the U.S. If you're considering moving, or you want to know the details about a certain area of the country and its cost of living data compared to other states or cities, researching can be extremely beneficial. When relocating, considering this sort of information can make a huge difference in predicting and choosing what kind of a financial lifestyle you encounter. (For related reading, see How Moving Can Affect Your Finances.)
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