What is a Cost of Living Allowance, or COLA?

A cost of living allowance, or cost of living adjustment, is when an employer adjusts an employees salary based on the cost of living index for living in different geographies.

Cost of Living is Important

Is the grass really greener on the other side? I work for a company that has multiple offices across the country (and world for that matter). When someone sees that they won’t be given the opportunity to move into a new position as quickly as they’d like or they don’t like their current role and want to try a new one, they often turn to other offices.

What these ‘movers’ tend to not think about or ignore is the cost of living adjustment (COLA) that they may be having to face. I work in an affordable Midwest city, and the offices that my colleagues relocate to are based in high end east and west coast metropolitan areas. I’m very thankful to have the standard of living that I do.

Is Living Cost that Important?

Internal company mobility is a good thing, however, I often wonder if there is any consideration from a ‘movers’ end on how the move is going to effect their standard of living (salary change is often the cause for a move, but I’m talking net salary change and change in lifestyle). On the flip side, I have seen a few people actually do the opposite and make the move to our little Midwestern city so that they can actually make more of their money and purchase their first house ever. A wise move, in my humble opinion.

When you make a big move, either internal, or to a new job, there are some questions you should ask and research you should do beforehand.

Questions to Ask your Employer about Cost of Living Allowances when Making an Internal Move:

• How much would the cost of living allowance be, if any, if I moved to a new office?
• What is the average cost for apartments, homes, taxes, and food in the area?
• Is there anyone else in the company that has made a similar transition that I can talk to?

Questions to Ask Yourself About Cost of Living when Moving to a New Job:

• Am I going to have to take a step down in my outside-of-work comfort level? For instance, am I going to have to settle for an apartment versus a house? Am I going to have to eat Ramen versus Chipotle?
• Am I going to have to find a roommate?
• How much is it going to cost me to live the type of lifestyle that I want to live?
• How long is my new commute going to be?

Additional Cost of Living Research you Should do Beforehand

• Figure out the cost of living adjustment beforehand. COLA calculators can be found below.
• Create a spreadsheet that to figure out your net income or loss compared to your current situation should you decide to make the move. It should also factor in how many years you plan to stay in the new job.
• Determine whether or not this move is going to give you more or less career flexibility.
• If you’re simply looking to take a new job, research what cities are the most affordable. MSN has a list of what they determined to be the 9 most affordable cities in the U.S. Forbes has a top 10 most affordable places to live well list. Two good places to start.

Cost of Living Calculators

• CNN has an amazing comparitive salary calculator where you can plug in your salary, your current city, and your destination city to find out how much salary you’d need to ‘break even’.
• Salary.com has a similar cost of living calculator.
• As does payscale.com.

Cost of Living for you

In order for me to have an equivalent standard of living in moving to the west coast office of my employer, my cost of living adjustment would have to be 71%. The east coast office would have to be a 30% increase. I don’t know what the actual cost of living adjustment is, but I’m willing to bet that it’s a fraction of each.

So, you have to ask yourself. Am I coming out on top here? Is it really worth it? Sometimes blind ambition can be your worst enemy if you don’t analyze the situation from all angles.

Cost of Living Discussion:

• Have you moved to a new city to take a new job? Was the move internal or to a new company?
• Did you come out ahead/behind?
• Are you willing to take a step back in standard of living for career opportunity down the road?

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