What is a Cost of Living Adjustment, or COLA?
A cost of living adjustment, or cost of living allowance, is when an employer adjusts an employee’s salary based on the cost of living index for living in a different geography. Some employers offer them. Others do not.
Cost of Living is Important
Is the grass really greener on the other side? My employer 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 for a fresh start.
I work in an affordable mid-sized Midwest city, and the offices that many of my colleagues relocate to are based in high end east and west coast metropolitan areas.
For many of them, often within the first decade of their career, this could prove very challenging to their financial situation.
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. In reality, it is a fraction of.
I’m very thankful to have the standard of living that I do. If I were to move, my cost of living would increase so significantly, I would no longer be able to own a home, and potentially not be able to afford a down payment on one. Food, transportation, insurance costs, and taxes would all increase quite a bit.
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. A wise move, in my 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 change beforehand. Cost of living 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. Kiplinger has a list of the 10 cities with the cheapest cost of living in the U.S. Forbes has a most affordable cities 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.
- There is also a payscale.com cost of living calculator.
Is it Worth it?
Even if net income decreases, other factors could make the move worth it. Family and upward mobility are two that come to mind.
But if you are making a lateral move just to escape your current situation or thinking that a miniscule cost of living adjustment from your employer will bring you more income, you may want to re-consider.
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?