Why published indices rarely answer your question
Cost of living indices compress thousands of prices into one number using a basket someone else chose, a household someone else assumed, and a base location that may be irrelevant to you. They are useful for ranking, and close to useless for deciding. The question you actually have is narrower: given my income, my household and my choices, how much is left over in each place, and how confident am I in that answer?
This article is the method rather than the content. The other articles in this cluster each solve one input. This one assembles them and, just as importantly, lists the errors that invalidate most attempts.
The output to solve for
Do not solve for an index. Solve for annual discretionary surplus, defined as net income, minus mandatory contributions not already deducted, minus housing, minus recurring living costs, minus annualised one off costs. Then express the surplus as a percentage of net income, so that two places with different income levels can be compared on the same footing.
Nine steps
- Define the decision. Two named options, a stated household composition, and a stated time horizon. A comparison without a horizon cannot handle one off costs correctly.
- Fix your own basket. Use your current bank statements, categorised, as the starting point. Adjust for things that will genuinely change, not for things you aspire to change.
- Convert to net income. Never compare gross figures. Use the destination tax authority’s own calculator or a sample pay slip.
- Set one currency, one date, one rate. Use a mid market rate on a stated date, or a stated average over a stated period, and write the choice into the sheet.
- Match housing like for like. Same size, same tenure, same location quality. Comparing a rented flat in one place with an owned house in another is the most common single error.
- Separate one off from recurring, then annualise the one offs over your stated horizon.
- Treat mandatory contributions as deductions, not spending, and make sure you did not also include them as a spending line.
- Build a sensitivity table on the two or three inputs that actually move the answer. In most comparisons these are housing, tax and childcare or schooling.
- Cite every cell. Source and date next to each figure. Cells without a source are guesses, and guesses should be visibly marked as such.
An illustrative worked example
The numbers below are invented to show the shape of the calculation. Suppose two options over a three year horizon, with one off relocation costs of 6,000 for Option B annualised to 2,000 per year, and 6,000 of setup costs for Option A likewise annualised.
| Line | Option A | Option B |
|---|---|---|
| Net annual income | 45,000 | 52,000 |
| Housing, all in | 14,400 | 21,600 |
| Other recurring living costs | 16,000 | 18,000 |
| Annualised one off costs | 2,000 | 3,000 |
| Annual surplus | 12,600 | 9,400 |
| Surplus as share of net income | 28.0 percent | 18.1 percent |
Option B pays more and leaves less. But the conclusion is fragile, which is exactly why step eight exists.
| Housing assumption for Option B | Housing cost | Surplus | Ranking |
|---|---|---|---|
| 15 percent higher than assumed | 24,840 | 6,160 | A ahead by a wide margin |
| As assumed | 21,600 | 9,400 | A ahead |
| 15 percent lower than assumed | 18,360 | 12,640 | Effectively tied |
A single 15 percent error in one line reverses the conclusion. Any comparison presented without this table is presenting false precision. We would rather publish a range with the assumptions visible than a single number that looks authoritative and is not.
The errors that invalidate most comparisons
- Mixing gross and net. Comparing a gross salary in one country with a net salary in another. This dwarfs every other error.
- Country averages against city prices. National statistics and capital city rents are not the same population.
- Small sample crowd sourced data. Community price databases suit orientation, not line items with few submissions. Check the sample size where it is published.
- Ignoring the transfer side. Child benefits, housing allowances and tax credits change family results materially.
- Double counting. Health insurance deducted from pay and then also entered as a spending line.
- Rent against mortgage. A mortgage payment mixes interest, which is a cost, with principal, which is saving. Compare rent to interest plus ownership costs, and treat principal separately.
- Stale exchange rates and mixed dates. A rent from last year against a salary from this year against a rate from a third date.
- Assuming your consumption is portable. Climate, distances, housing stock and social norms change what you actually buy.
- Treating an index number as a price. An index of 78 does not mean everything costs 78 percent as much, and the basket behind it may not resemble yours.
Source hierarchy
- Best. A binding quote or contract in your name: a lease offer, a written insurance quote, a school fee schedule, a sample pay slip.
- Good. Official statistics from a national statistics office, tax authority, regulator or central bank, with a publication date.
- Usable with care. Provider published tariff sheets and listing portals, which show asking prices rather than transaction prices.
- Orientation only. Aggregated or crowd sourced comparison sites.
- Not a source. Anecdotes, forum posts and figures with no date.
Keeping the model alive
We build ours in a spreadsheet with three columns per option: value, source, date. Add a row for the exchange rate used. Revisit it before any irreversible decision, because tax rules, interest rates and rents all move. When the answer is close, treat it as close: a difference of a few percent between two options is within the error bars of any comparison built this way, and the decision should then rest on factors this model does not measure.
Every rule, rate and price you will put into this model varies by country and changes over time, so confirm each one with the relevant local authority, the provider concerned, or a qualified professional. This article is informational only and is not financial, tax or immigration advice.
How to Use This Guide
Every worked example on this page is illustrative. The figures are chosen to show how the calculation behaves, not to report current market rates. Costs, tax rules and eligibility criteria differ by country and change over time, so take the method from this page and put your own current figures into it. Browse the rest of our guides, or see how we source and check our comparison figures on the about page.
Information only. This article explains how costs and rules are structured. It is not financial, tax, legal or immigration advice, and it is not a recommendation to buy any property, vehicle or investment. Confirm anything that affects a decision with the relevant local authority or a qualified professional before you act on it.
Last updated: August 14, 2026