What Is Purchasing Power?
Purchasing power is the quantity of goods and services your income can buy. Two people with the same salary have different purchasing power if they live in areas with different price levels. Purchasing power adjusts a nominal salary for local costs to show its real value.
AffordMap calculates purchasing power by dividing your estimated post-tax, post-rent income by the local Regional Price Parity (RPP). This gives a "national equivalent" figure, what your remaining money buys compared to the average American location.
Purchasing power is the metric that answers the real question behind salary comparisons: "Am I actually better off?" A $120K salary in San Francisco with $2,600/month rent and an RPP of 127 leaves less purchasing power than an $85K salary in Columbus with $1,200/month rent and an RPP of 92.
The concept applies beyond salaries. Retirement savings, investment income, and Social Security benefits all have different purchasing power depending on where you live. This is why financial advisors increasingly recommend considering geographic arbitrage in retirement planning, retiring in a low-cost area to stretch fixed income further.
Example
A software developer earning $150K in San Francisco keeps about $7,200/month after taxes. After $2,600 rent, $4,600 remains. At RPP 127, that $4,600 has the purchasing power of $3,622 at national-average prices. The same developer earning $110K in Austin keeps $6,800/month, pays $1,480 rent, and has $5,320 remaining. At RPP 102, that's $5,216 in purchasing power, 44% more real money.
Data source
Economic concept; data from BLS Regional Price Parities and HUD Fair Market Rents. View source data (opens in new tab)
Related terms
See purchasing power applied to real salary data
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