PERSONAL FINANCE

Using the Table 706 to Adjust for Cost of Living Differences

To adjust the preliminary estimates of expenditures from the CEX for differences in costs of living (COL) use Table 706 from the Statistical Abstract. This table is available in the folder for the Purchasing I presentation. Scroll down the Table until you find the metropolitan area closest to the area where your family is living.

The overall cost of living in the US is 100 for this index. If the cost of living for the metropolitan area where your prototype lives is greater than 100 for some item (e.g., "Grocery items" (food in the CEX)), then you need to increase the expenditures for that item by the amount by which the index exceeds 100. If the cost of living for the metropolitan area where your prototype lives is less than 100 for some item, then you need to decrease the expenditures for that item by the amount by which the index falls short of 100.

For example for the Houston prototype, I scrolled Through Table 706 to Texas and then found "Houston-Sugar Lane-Baytown, TX". As can be seen in the table below, the overall COL in Houston is below the average for the US (COL Composite index of 90 v. 100 for the US). I need to reduce my CEX estimates to reflect the lower COL in Houston. For example, I would reduce my CEX estimates for food by 15.7% since food costs less in Houston. To do this, I would simply multiply my CEX estimate of food expenditures by .843. I would adjust all other CEX expenditures estimates using the appropriate index from Table 706.

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