The cost of living is calculated by taking the average cost of living in all the states in the United States. This average is taken as the base which in turn is taken as 100. On the basis of this base, we can know whether the state is expensive or cheap. An index above 100 indicates the state is expensive and vice-versa. The cost of living index of New Mexico is 88. This means that the state is cheaper than most other states. Housing is a big factor that contributes to bringing this index down.