Money Abroad
The cost-of-living comparison that matters is the basket you actually buy
National averages are built from a household that is nobody in particular, and a foreign resident’s costs depend almost entirely on how quickly they adopt local habits.
By Sofia Almeida3 min read
Why the headline comparisons mislead
Comparisons between countries are usually built by pricing a standard basket of goods and converting it into a common currency. That is a reasonable way to compare economies and a poor way to predict what a particular person will spend, because the basket is a statistical construction and you are not.
The distortions run in both directions. A country can look expensive because of items you will never buy, and cheap because of subsidies and habits that only apply to residents who know how to use them. Housing, which usually dominates a personal budget, varies so much within a country that a national figure carries almost no information.
The exchange rate adds another layer. A place can become noticeably cheaper or dearer for you without a single local price changing, which matters enormously if your income is in a different currency. Two people living in the same street, earning the same amount in different currencies, can have quite different experiences of whether the city is affordable.
A newcomer pays a premium for a while
For the first months, almost everybody spends more than a local household in the same circumstances. You buy the imported version because it is recognisable, you shop at whatever is nearest, you take taxis while you learn the transport, you eat out because the kitchen is unfamiliar, and you have not yet found the cheap route to anything.
That premium is real and it is temporary. Watching it fall is one of the more satisfying measures of settling in, and it explains why the first two months of accounts are a bad basis for deciding whether a place is affordable.
It also means the honest comparison is not between countries but between your life at home and your life there. Different things are cheap in different places, so the household that adapts pays local prices while the one that reproduces its old life pays import prices.
Build your own basket instead
A more useful exercise takes an afternoon. List what you actually spend money on in a typical month at home, with amounts. Then price those specific items in the destination, using local shops’ own websites, local rental listings and local transport operators rather than a comparison site.
You will find quickly that the categories diverge. Housing and transport usually dominate and are researchable. Food is best estimated by pricing what people there eat rather than what you eat now. Some categories collapse to nothing — a car may become unnecessary — and others appear that did not exist before, such as heating in a building with no insulation.
The result is not precise and it is far better than a national index, because it is built from your life rather than from an average household’s.
The costs that only appear once you live there
Several categories are invisible from outside. Local taxes and charges attached to occupying a property. Compulsory insurances, which some countries require for tenants. Refuse or water charges billed in unfamiliar ways. Annual rather than monthly billing, which is a cash-flow problem rather than a cost.
Healthcare deserves its own line, since the structure differs so fundamentally between countries that no comparison is meaningful without understanding what you are required to have and what you will pay for. That is worth researching properly, from official sources for the country concerned, before rather than after.
And there is the cost of being foreign: flights home, calls, visitors, the documents and certifications that residents never need, and duplicate arrangements maintained in two countries.
What to do with the answer
The point of the exercise is not a single number but a sense of which variables matter. For most people it comes down to housing, healthcare and how income is taxed, and the rest is noise around those three. If those three work, the coffee price is not going to change the outcome.
It is also worth stress-testing against a currency movement, since anyone earning in one currency and spending in another should know how a significant shift would feel. If the plan only works at today’s rate, it is not a plan.
And then leave room for the ordinary truth that people adapt. Spending patterns shift towards what is good and cheap locally, usually within a year, and that adaptation is worth more than any amount of budgeting done in advance.
Common questions
Are crowd-sourced price databases reliable?
They are useful for orders of magnitude and unreliable for precision, since submissions are uneven in quality and often skewed towards city centres and towards the people who contribute. Use them to form questions, then verify against actual local listings.
How do I compare housing costs sensibly?
By looking at real listings in the specific neighbourhoods you would consider, at the size you would actually rent, and by finding out what is excluded from the advertised rent. Charges, heating and local property taxes are treated differently between markets and change the total substantially.
Should I plan around today’s exchange rate?
Plan around it and check what happens if it moves against you by a meaningful margin, because over a stay of a year or more it will move. If a plan only survives at the current rate, it needs a larger buffer or a different structure.
Staff writer, Globetrotter Talks
Sofia joined to cover arriving, visas & paperwork, money abroad and stayed for the awkward questions and prefers a plain explanation to a clever one.
