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Hi,
I have been staring at my spreadsheet trying to figure out why ER is still so far away even though I'm working hard at it and doing most of the right things.
It dawned on me tonight that I am not being consistent with the way I treat inflation. When I calculate my 401(k) balance, I don't increase my contributions with inflation. But when I calculate my expense, I increase those at the rate of inflation.
For example, suppose I am contributing $500 monthly to my 401(k) and have monthly expenses of $1000. In ten years, my spreadsheet is set up to be contributing the $500 to my 401(k), but my expenses would have increased to $1,343.92 (using 3% inflation compounded annually).
I like to be conservative in my estimation but also reasonably fair. It seems to me I should inflate both or neither.
So for those of you who have your own spreadsheets or have an opinion about this, what do you do?
2Cor521
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