Cost of Living 2024: Everything you need to know about handling rising living costs

Key facts

• The cost of living is how much money it takes to buy necessary items, like food or housing.
• Housing, health, food, and travel costs have risen the fastest so far in 2024. 
• Climate change, corporate profiteering, and global supply chain issues have each driven up the cost of living in Australia.

What is the cost of living?

How much does it cost to live in Australia? It’s not just a high school economics question. In fact, the cost of living has an enormous impact on your personal finances.

The cost of living is how much money is takes to afford life's necessities, such as:

• Food
• Housing
• Transportation
• Healthcare
• Utilities
• Taxes.

These costs can be a useful comparison tool, since they vary depending on where and when you live in Australia. Someone living in a capital city, for example, won’t have the same cost of living as someone in a regional area. 

Generally, a higher cost of living means that basic expenses have become – well, expensive. This especially impacts low-income households, since they have to spend a larger part of their budget on non-discretionary items like food or petrol. If prices rise, low-income households feel it the most.

Cost of living is therefore crucial to consider when it comes to personal finances. 

How much it costs to live in Australia varies by location and time period, so it can be a little difficult to pinpoint exact numbers. 

For example, collaborative database Expatistan estimates the current cost of living in Australia by crowdsourcing prices from locals.

At the time of writing, Expatistan says it costs roughly $5,702 per month for a single person or $9,495 per month for a family of four to live in Australia, just for the bare essentials. This means Australia is one of the most expensive countries in the world to live in (ranked 10 out of 68).

Standard of living describes the level of wealth, comfort, and necessities available to someone based on their socioeconomic status and location. Cost of living, on the other hand, only describes the price of basic necessities. 

Many factors go into measuring the standard of living, such as:

• Life expectancy.
• Inflation rate and national economic growth.
• Poverty rate and class disparity.
• Infrastructure.
• Political and social freedom.
• Environmental quality and climate.
• Income and employment opportunities.
• Access to affordable and quality housing, healthcare, and education. 

Because of this, standard of living is usually a far more comprehensive measure of someone’s circumstances than cost of living. 

Standard of living differs widely along socio-cultural lines, too, such as race, gender, sexuality, ability, and age. It can even give us an idea of someone’s “quality of life”, or subjective happiness.

However, cost of living is still a very important factor in understanding how we live. If someone faces a higher cost of living, it follows that their standard of living – and quality of life – might also be impacted. 

Therefore, when it comes to saving money and maintaining a good standard of living, basic costs are a crucial part of the equation.

Generally, economists measure the cost of living in a few different ways:

• Calculating the cost of basic necessities.
  
• Determining if people can afford those costs, based on how much they earn.
• How changes in costs affect different groups of people.

The Australian government relies on a few crucial numbers from the Australian Bureau of Statistics (ABS) to gauge these aspects of the cost of living, mainly the Consumer Price Index (CPI), Living Cost Indexes (LCIs) and the Wage Price Index (WPI).

These statistics all sound similar, but they have different and important meanings.

“Index” to an economist means “change in value”. Therefore: 

• The Consumer Price Index (CPI) measures the change in value of consumer goods and services, like food or healthcare. 
• The Living Cost Index (LCI) measures the impact of changes prices on different households, i.e. how much a household has to spend to afford essential goods.
• The Wage Price Index (WPI) measures the changing price of labour, or someone's wage.

The CPI, LCI, and WPI will measure changes in the cost of living monthly, quarterly, or annually.

For example, let’s say the price of food goes up. This will drive up the food CPI, since there has been a value increase.

However, this increase will hurt a pensioner with a fixed income a lot more than a young worker with a disposable income. Therefore, the LCI will show different expenditure increases for pensioners and young workers. 

It’s important to keep in mind that price jumps in consumer goods won’t hurt people’s finances so long as wages go up, too. Economists then keep a good idea on how wage growth, or the WPI, compares with the CPI. That way, we can see if households have the ability to keep pace with inflation.

In summary, by studying the relationship between the CPI, LCI, and WPI, we can see which groups face additional financial pressure due to price changes in the economy, and how this impacts their cost of living.

The Consumer Price Index (CPI) gives us a crucial part of the picture when it comes to affordability, inflation, and the cost of living.

Generally, if the CPI rises faster than households can keep up, then it makes the cost of living really expensive – and for some Australians, unaffordable. 

Between December 2022 - 2023, headline inflation in Australia rose by 4.1% for non non-discretionary items (which low-income Australians spend most of their incomes buying). This is a significant slow down on the previous quarter, which came at an eye-watering 6.0%.

Meanwhile, during the same period, wages rose by 4.2%. This means salaries finally started to keep pace with the price of goods. Inflation slowing down to match income growth means money literally counts for more. 

The CPI isn’t a perfect metric. In Australia, the federal CPI doesn’t take into account costs like regional prices nor the purchase of established houses. This means that some of the true cost of living pressures faced by Australians aren’t reflected in official statistics. 

However, the CPI remains an important tool for judging rising prices in the economy, which can help consumers make decisions about how (or if) they can save money.

Let’s break down how price changes in everyday items could affect your cost of living.

Home costs

Housing is usually the biggest budget item for any Australia. Whether you’re paying rent, a home loan, or simple utility bills like energy, spending money on housing is non-negotiable.

However, if you're spending more than 30% of your income on housing (such as mortgage repayments or rent), you're considered to be under "housing stress".

Housing stress is one of the key benchmarks the Australian government looks at when gauging housing affordability. High levels of housing stress indicate an unfair and expensive housing market, whereas low levels suggest everyone who wants to rent or own a home can. 

And since housing is an essential item, it's a major part of the cost of living.

Housing costs can be sensitive to inflation and the economy. The main ones include:

• Utilities like electricity, phone, and internet bills
• Rent
• House prices
• Mortgage repayments
• Home insurance premiums.

All of these expenses can change based on what's happening in the Australian economy.

Car costs

Thankfully, if you live in a major Australian city, decent public transportation system means you don't always need to drive a car. But for those Australians who do, here are the crucial driving expenses that can change with the cost of living:

• Petrol, such as fuel or diesel
• Vehicle prices
• Registration costs
• Car insurance premiums.

Car costs can also affect transportation overheads for companies. Anything from shipping food from farms to online shopping deliveries can go up in price because fuel is more expensive. Therefore, car costs an important CPI to watch for the cost of living.

Food & beverage

Grocery shopping is an obvious essential, so changing food and beverage prices have an immediate impact on everyone's cost of living. Even a ten cent hike in milk prices accumulates over time.

Some food groups that have spiked recently in Australia include:

• Dairy products, like milk and cheese.
• Canned goods, like baked beans and tinned spaghetti.
• Wheat, rice, fats, and oil, including related products like biscuits, bread, and beer.
• Fresh fruits and vegetables, specifically bananas, tomatoes, zucchinis, beans, cucumbers, avocados, and mangoes.
• Red meat, like beef and lamb.

If Australians can't afford good quality foods, it can badly affect their nutrition. This can contribute to significant (and expensive) chronic health risks in the long-run and worsen the standard of living, not just the cost of living.

If you’re struggling to save because of the high cost of living, you’re not alone. Many Australians are doing it tough at the moment. However, there are still ways to take back control.

So if you want to save money and handle the cost of living in 2024, here are a few areas to tackle.

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Rent

The average rent in Australia has risen significantly over the past two years thanks to a combination of tight supply and landlords passing along RBA rate hikes.

In the meantime, you can try these strategies to save on rent:

• Build a budget. Try out our budget calculator to see where you could save.
• Think long-term. Consider your long-term housing prospects, i.e. renting vs. buying. 
• Negotiate with your landlord. If your landlord proposes to hike your rent, present a reasonable counter offer and discuss your options. Research your local suburb so you know what's typical in your area.
• Switch bank accounts. Boost your savings by comparing bank account options.

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Home loans

Cash rate hikes have significantly driven up the cost of mortgage repayments in Australia, for variable and fixed rate home loans alike.

The pace of rate hikes will likely slow down in 2024, but the damage is more or less done. The official cash rate was 0.10% in May 2022. Now in February 2024, it's 4.35%.

Here are some ways to lower the cost of your home loan repayments in 2024:

• Do your research. Compare home loans to get started. If you find a better deal, consider refinancing.
• Pay off your principal. Making extra repayments to reduce your principal can decrease the size of your mortgage repayments and save interest in the long run.
• Put your savings in an offset account. Offset accounts 'offset' the amount of interest you pay on your home loan.
• Think outside the box. If you're looking to become a first home buyer in 2024, consider smaller or up-and-coming property markets to buy in to reduce the size of your home loan. Alternatively, you could become a rentvestor to build home equity while living in your preferred suburb. If you're thinking about selling or downsizing, remember to watch out for capital gains tax. 

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Savings accounts

Your savings account is an essential part of your financial plan, so it’s important that it does as much heavy-lifting as possible. 

• What's your savings rate? Savings account interest rates have risen significantly, which could earn you more interest on your eligible nest egg. Compare savings accounts to find the best place to park your savings. 
• Start a budget. Saving and budgeting doesn't have to be scary or boring: think of a budget as empowering your spending, rather than restricting it. There are even smart budgeting apps that do the number-crunching for you!

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Groceries

While food might be a necessary expense, there are ways to save without compromising quality. 

• Shop online. Our expert research team at Mozo has also taken the time to carefully study and compare the best online shopping options on the market, so you can save time and money.
• Subscribe to a meal kit service. Our research has found meal kits can make a compelling, budget-friendly alternative.
• Try shopping hacks, like shopping later in the day, making a list, or cutting back on meat to save on your grocery budget. You can catch more sneaky tricks like these in our new low-cost shopping guide.

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Petrol

The price of petrol has climbed to new heights. But even if you can’t control global oil prices, you can still plan clever ways to reduce costs. 

• Cut back on your work commute.
• Work from home more, or at least weigh up the pros and cons of working from home.
• Take advantage of fuel rewards. While membership fuel rewards may not save you much, their value grows if you're a frequent driver.

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Utilities

Keeping the lights on and water running is a given, but there are other bills like gas, internet, and even bin collections that can sneak up on you.

Here are some ways to keep your utility cost of living down in 2024:

• Cut down on your electricity usage using energy saving measures.
• Compare providers. Figure out if you’re getting the best deal by comparing energy providers.
• Be season conscious. In the winter, focus on heating the human instead of the home, while during summer try and improve the insulation and ventilation. The more consistent the inside temperature is, the less money you'll spend trying to change it.
• Consider solar panels. Solar panels can significantly offset your energy usage, though sometimes the upfront costs can be steep. On the other hand, research shows energy-efficient features add value to your home, so it could be an investment to consider. 

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