Cost of Living 2023: Everything you need to know about handling rising living costs | Mozo (2024)

By Evlin DuBose · Last updated Thursday, 7 December 2023 · 9 min read

Key facts

• The cost of living is how much money it takes to buy necessary items, like food or housing.
• Climate change, corporate profiteering, and global supply chain issues have each driven up the cost of living in Australia.
• Housing costs, groceries, fuel, and recreational activities like travel are 2023's biggest expenses.

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.

Economists gauge how much it costs to live somewhere by using a few different metrics, such as the cost of basic necessities, whether people can afford those costs, and how changes in those costs affect different groups of people.

Since the cost of living can vary, it’s important to understand how it affects your personal financial situation– and better still, what you can do about it.

It depends! The cost of living is the amount of money it takes to afford basic and necessary expenses, such as:

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

These costs can be a useful comparison tool, since they vary depending on time period and where 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.

However, because the cost of living varies so much around the country, it’s a little difficult to pinpoint exact prices.

For example, the Department of Home Affairs requires international students to demonstrate they can cover living costs of at least $21,041 per year (or $1,754 per month) for a single person, not including any tuition fees or payments, though this number is more reflective of living costs back in 2019.

Meanwhile, collaborative database Expatistan estimates the current cost of living in Australia is roughly $4,456 per month for a single person or $8,071 per month for a family of four, just for the bare essentials. According to Expatistan, this means Australia is one of the most expensive countries to live (ranked 9 out of 69).

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, as it shows us how the larger economy affects our individual circ*mstances.

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 circ*mstances 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.

The Australian government evaluates the cost of living through a few numbers, 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:

• CPIs measure the change in value of consumer goods and services (like food or healthcare).
• LCIs measure the impact of changing values on different kinds of households – in other words, how much money a household needs to spend to maintain their standard of living.
• WPIs measure the changing price of labour, or fluctuating household incomes, in a few different standardised sectors.

For example, let’s say the price of food goes up. This will drive up the corresponding CPI, since there has been a positive change in value. 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 as a result of the same CPI increase.

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 (WPIs) 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 September 2022 - 2023, headline inflation in Australia rose by 6.0% for non non-discretionary items (which low-income Australians spend most of their incomes buying). This is a slow down on the previous quarter, which came at an eye-watering 7.0%, but is still very high.

Meanwhile, wages appear to have only risen by 3.6% over the same period. This means that the price of goods grew way faster than salaries – a sure sign that households have lost some of their purchasing power.

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.

How to ask for a pay rise

Let’s break down how price changes in everyday, non-discretionary items could affect your finances.

Home costs

Homes are by far the most draining item on your bank account. Whether you’re paying rent, a mortgage, or simple utility bills, 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.

Some home costs that could easily be affected by changing CPIs include:

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

All of these expenses can change based on the fluctuating economy.

Car costs

Thankfully, our decent public transportation system means Australians don’t always have to cough up cash for a car. But for those who do, here are the crucial driving expenses that can change with the cost of living:

• Petrol
• Vehicle prices
• Registration costs
• Car insurance premiums.

For example, the price of petrol skyrocketed alarmingly fast in 2022, with a CPI hike of 11% in March 2022 alone (the highest rate increase since the 1990 Gulf War).

This jump had ripple effects for all vehicles, too, not just personal ones. We saw rises in the costs of public transport, air travel, and even online deliveries over the last year, making car costs an important CPI to watch.

Food & beverage

Grocery shopping is an obvious must, so changing food/beverage prices have an immediate impact on everyone. Even a ten cent hike in milk prices accumulates over time.

Some food groups that have spiked 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 people can't afford good quality foods, it can badly affect their nutrition. This can contribute to significant (nd expensive chronic health risks in the long-run and worsen someone's standard of living.

10 cost of living tips

If you’re struggling to save, you’re not alone.Here are a few critical financial areas to tackle for handling the cost of living in 2023.

Rent

As landlords came under fire from interest rate hikes and the border reopened, Australian rents jumped over 10%in 2022.But even if you’re not renting your forever home, you can still brace your budget with these strategies:

• Build a budget.Try out ourbudget calculatorto see where you could save.
• Think long-term.Consider your long-term housing prospects by weighing uprenting vs. buying.
• Switch bank accounts.Boost your savings bycomparing bank account options.

Home loans

The housing market has been volatile lately in the wake ofvariable and fixed rate hikes. However, this doesn’t mean your finances have to be equally chaotic.

• Do your research.Compare home loansto get started.
• Think long-term.Be sure to consider thelong-term housing market outlookwhen making a decision.

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.

• Track your spending with a budget.Thesebudgeting appswill even do it for you!
• Save energy and compare providers.Considerenergy saving measuresand whether you’re getting the best deal bycomparing 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.

Savings accounts

Savings accounts can be an integral part of boosting your finances, so it’s important that it does as much heavy-lifting as possible.

• Consider high-interest savings accounts.Returns on savings accounts have begun to climb, soit could be time toswitch high interest savings accounts.
• Save and budget.You can evenchallenge yourselfto save in fun ways, or design an impeccable budget so that you’re putting as much money away as possible.

Groceries

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

• Shop online.Our research team at Mozo has also taken the time to carefully study and compare thebest online shopping optionson the market, so you can save time and money.
• Subscribe to a meal kit service.Our research has foundmeal kitsmake a compelling, budget-friendly alternative.
• Heed shopping tips, like shopping later in the day, making a list, or cutting back on meat.You can catch more sneaky tricks like these in our newlow-cost shopping guide.

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 backon your work commute.
• Work from home,or at leastweigh up thepros and cons.
• Reduce petrol.If the car trip is unavoidable, consider thesefive ways to save petrol. Even investing in an electric vehicle could save you long-term.
• Take advantage of fuel rewards.Whilemembership fuel rewardsmay not save you much, their value grows if you're a frequent driver.

Erratic weather due to climate change

The past three years have slammed Australians with back-to-back droughts, bushfires, and intense flooding. It can be easy to feel helpless, but there are plenty of ways to reduce your carbon footprint while we address the larger systems at work.

• Get sustainable.You cango green with your homeor choosesustainable investment options.
• Get covered.Meanwhile, protect your home and valuables from erratic weather events by considering eithercheap home insuranceorcheap car insurance.

While you’re not in control of changing global market dynamics, there are plenty of ways to save money and manage the rising cost of living.

Here's a list of tools and guides to get you started.

Housing Guides

• First home buyer guides.
• Track home loan interest rates.
• Australia's best home loans.
• 4 ways to save money on your rent.

Banking guides

• Australia's best bank accounts.
• Your essential guide to building an emergency savings fund.
• Best budgeting and savings apps.
• How to free yourself from debt.

Energy Guides

• Low cost ways to save energy and reduce your energy bill.
• Comparing energy plans? Here's what to consider.