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DQOTD: Today's Dollars?
Old 06-15-2008, 08:21 AM   #1
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DQOTD: Today's Dollars?

I understand the difference between "Dollars" and "Today's Dollars." I think in Real Dollars from my business experience - I have rarely if ever seen anything in the business world reported in Today's Dollars. However, most of the financial planning work I've seen seems to all be in Today's Dollars. The only reason I can guess is because it's probably easier for consumers to input in 'today's dollars' vs asking them to inflate entries that are (often many) years away. Anyone know why "Today's Dollars" seem to be preferred by so many financial planners and software? Just curious...
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Old 06-15-2008, 10:46 AM   #2
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That gets talked about all the time. People want to plan in terms of consistent life style and consumption. Maintaining expenses and income at a consistent level in "today's" dollars assures that. If I need $100K/yr to live on today do I really want to be thinking in terms of $250K/yr 20 years out? I would rather think in terms of maintaining my $100K lifestyle.

Edit: of course as time goes by we will constantly update "today" so in 15 years I would be talking about my $200K lifestyle, or whatever the realities of inflation and the market have made it.
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Old 06-15-2008, 07:11 PM   #3
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Originally Posted by Midpack View Post
I understand the difference between "Dollars" and "Today's Dollars." I think in Real Dollars from my business experience - I have rarely if ever seen anything in the business world reported in Today's Dollars. However, most of the financial planning work I've seen seems to all be in Today's Dollars. The only reason I can guess is because it's probably easier for consumers to input in 'today's dollars' vs asking them to inflate entries that are (often many) years away. Anyone know why "Today's Dollars" seem to be preferred by so many financial planners and software? Just curious...
Also, a lot of people simply don't realize the impact of "just" 3%/4% inflation compounded every year. They think that if they can live on $50k/year this year, that they won't need too much more than that 20-30 years from now...and when their snake oil salesperson 'advisor'/planner shows them charts that they will be getting $75k/year 20 years from now, they are liable to think "Oh, boy! We'll be living high off the hog when we're retired" - when in fact it's barely equal to what they're spending now.
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Old 06-16-2008, 06:55 AM   #4
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That's so true. My spreadsheets are computed in today's dollars, for the same reasons. Even though I know that my money will be losing value, it is less confusing and simpler for me to convert everything to today's dollars.

Increasing my "allowance" to myself each year may seem (to me) to be an act of breathtaking bravery and daring, but I will need to do that to compensate for inflation. What a rush.

Maybe after ER I will create a set of spreadsheets that are not in today's dollars, since my financial plan will be in place and fixed at that point.
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Old 06-18-2008, 10:55 AM   #5
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Originally Posted by Midpack View Post
I understand the difference between "Dollars" and "Today's Dollars." I think in Real Dollars from my business experience - I have rarely if ever seen anything in the business world reported in Today's Dollars. However, most of the financial planning work I've seen seems to all be in Today's Dollars. The only reason I can guess is because it's probably easier for consumers to input in 'today's dollars' vs asking them to inflate entries that are (often many) years away. Anyone know why "Today's Dollars" seem to be preferred by so many financial planners and software? Just curious...
Most savers investors consumers think that "today's dollars" are "real dollars".

Financial planners work with the vocabulary that their customers want. Retirement budgeting makes no sense to most people unless they can equate their future numbers to what they're spending today on groceries, gas, or lattés. Despite what voters think about CPI manipulation, most people have no idea how to apply historic rates of inflation to their finances.

Think about how many times you've heard Grandpa's stories of five-cent movies and penny candy... or how we instinctively clutch our wallets when today's soda machines need a buck instead of the quarters we grew up with.
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