A cost-of-living allowance is the adjustment an employer applies so that an employee's purchasing power survives a move. It is built on an index, and the index is built on a baseline — usually 100, representing the home location.
Reading the index
If your home city is 100 and the destination indexes at 68, the destination basket costs 32% less. If the destination indexes at 128, it costs 28% more. The index applies to the portion of income you actually spend locally — not your gross salary.
A worked example
- Home disposable income spent locally: $4,000/month.
- Destination index: 128 (home = 100).
- Required local spend: $4,000 × 1.28 = $5,120.
- Monthly allowance: $5,120 − $4,000 = $1,120.
🇨🇴 Medellín is 76% cheaper than 🇺🇸 New York
$1,415/mo vs $5,890/mo for a comparable single-person lifestyle
Category breakdown
Estimates for planning purposes — confirm with an official source before you act.
What indices typically exclude
- International schooling fees
- Vehicle purchase and long-distance transport
- Property purchase and mortgage costs
- Income and wealth taxes
- Non-routine healthcare and insurance premiums
- Discretionary leisure, travel home, and club memberships
Estimates, not entitlements
COLA is a negotiation input. Bring your own basket figures — an employer's index may weight categories differently than your actual life does.
Estimates for planning purposes — confirm with an official source before you act.