The cost of living in Taiwan is slightly higher than in many other Asian countries, but salaries are also higher, so many expatriates enjoy a good standard of living there. However, costs will obviously vary to a degree throughout Taiwan i.e. housing costs are significantly lower in the south of the island.
Like most places in the world, the cost of living in Taiwan, can be as high or as low as you make it. There are a fair number of English teachers here, sometimes on a lower budget and they manage to live quite comfortably. In Taipei, the main expatriate area would most likely be the Tien Mu area.
'Going local' is the way to save money. If you can get to grips with the culture, eat at local noodle shops, make use of the public transport, stay away from expatriate bars, etc, and make do without imported western goods, you'll see a lot more of your salary at the end of the month.
One of the most enjoyable aspects of life in Taiwan is the 'eating out culture'. Cheap, delicious food is available just about everywhere. A reasonable daily food budget could be less than NT$300. See below for more.
It is possible to eat well at food stalls for around NT$50 or less, or in a western fast-food restaurant for around NT$100, while a meal in a plush restaurant serving foreign food is likely to cost anywhere between NT$500 and NT$1,000.
Other typical prices include: can of imported beer, NT$35; bottle of water, NT$20; cinema ticket, NT$250; bowl of noodles, NT$40; cappuccino, NT$100.
Daily groceries reportedly cost about the equivalent in Taiwan to their price in many western countries, although some imported products such as cheese and wine are expensive. Computers and electronic goods are competitively priced in Taiwan.
It is not necessary to tip waiters, taxi drivers etc. in Taiwan. Many restaurants add a service charge (usually 10%) so there is no need to tip. You should however give a small tip to bellhops in international hotels (if they carry your bags of course and only if you wanted them to) and if you make use of airport porters etc.