Cost of living

Sunday, 11 Feb 2007 | Life in Asia

At some point I’m going to have to look at if or not a salary is ‘good enough’ for me. In doing that, there will be two things I’ve got to take into consideration. The first is ‘what is standard in the country’ and the second is ‘what kind of lifestyle will it permit me’.

Standard in a country

Obviously there are different salaries for a certain position around the world. This has to do with how a job is perceived in that country, how much competition there is for that opening, etc. An english teacher for instance, makes a relatively low salary in Thailand because many people want (or feel they are able to) take that job. In Korea or Taiwan however, I’ve learned that job makes for a decent living. No, I’m not considering that. Competition is of course a simple market at work, if demand for financial analysts increasing the ones that are willing can command a higher salary.

Cost of living

To determine what a certain kind of lifestyle will cost in a country, the easiest thing I guess is to compare it to a lifestyle which you know how much it will cost. Perhaps because it was your life in Amsterdam? You then apply a certain index to it, called a ‘cost-of-living index’ and you have your required budget.

Now, these indexes are of course based on averages and so might not apply for certain lifestyles. It is also important to remember that this is only for the cost of living, not anything else. Here are a few examples, based on a published survey I found on the web.

Amsterdam is set at 83.4 and Bangkok is set at 64.9, that means that to maintain a similar lifestyle in Bangkok it will cost about 70% (64.9 divided by 83.4) of your salary. Don’t do this with your gross salary, as income tax is different in each country it would mess up the results. Use net salaries. In Hong Kong, I would have to make 140% of what I made in Amsterdam. In Singapore, about 110%. The most expensive city to live? Moscow, believe it or not.

What I do

In the Netherlands, a portion of your gross salary is put into a pension plan and taxed with income tax when it’s paid out. I believe that is different from many other countries. The Netherlands also provides a certain amount each month from a state managed fund called “AOW” (General Elderly Law), named I guess after the bill in which it was ratified. Both of these together add up to a certain number X. So when comparing a salary to my lifestyle in the Netherlands, what I do is I take the number offered and calculate how much the net amount would be. I then deduct X and apply the cost of living index to it.

The problem with this method is that it does not take into account the fact that life as a foreigner is usually more expensive. You are generally not aware of where to get the good deals like you would in your home country. You also use more expensive services, for language reasons. I am registered at the BNH Hospital for instance, because they will be able to speak proper English and not just rudimentary. It is one of the more expensive hospitals in Bangkok though. You could apply a cost-of-living adjustment for this, but I’m not doing that.

Another problem is that all this only applies to life within the country of residence. As soon as you go abroad, even if you’re going for a holiday, things don’t add up anymore. So while I might be able to maintain the same lifestyle in Bangkok on a certain salary, my salary will allow for a lot less trips abroad for the simple reason that for example visiting Japan is really expensive. So in that sense, the best thing that can happen to you is work in Moscow and make enough to maintain a similar lifestyle to what you want. The rest of the world will only be cheaper, as Moscow is the most expensive place.

Do keep in mind that even though from the above you might find that someone is not paying what you need to maintain a certain lifestyle. But thats also where the ‘standard in the country’ comes into play. An English teacher can jump up and down all he wants here, he’s not going to get the salary to pay for the lifestyle he might be used to in Tokyo. So being able to live in the country of your dreams, might mean you have to change your lifestyle a little bit.