Interesting! - My personal rate of inflation has dropped!

[rogersteciak]

Have your own inflation system if you must, but that's not is what is measured or discussed by experts in economics.

Although I use an inflation rate of 3% in my spreadsheet, I should change it to 5% for my personal rate of inflation.  That number is calculated as follows:  In 1990, my basic living expenses (i.e., minus the mortgage) were $1000 a month.  In 2005, these same expenses are now $2000 a month.  That translates into a 5% rate of inflation for myself (i.e., basic living expenses doubled in 15 years).  I'm still living at the same location and have basically the same lifestyle as I did then, so my personal inflation number of 5% is the right one for me to use.

 

[mathjak107]

yep thats the point...the cpi ,the number that the economists and government uses is a fictious person who really dosnt exist....
that fictious person always is willing to substitute or do without or uses products and services that the fictious person buys way below real pricing...look at rent ,look at health care, look at education ,look at the cost of actually buying a home,which by the way isnt even figured in the index.we all rent our selves our homes at way below market rate increase in the cpi.......there is far more to our "own" cpi than that silly govt number

 

[deserat]

Joe Dominguez actually discusses personal rates of inflation in his book "Your Money or Your Life" and says that they can go down or stay steady if you aren't the 'first adopter' of new technology. So, buying a plasma TV early in its market cycle will definitely increase your personal rate of inflation.

Frankly, I believe that minimizing your personal rate of inflation is the key to FI and RE - of course basic needs must be met, but beyond that, its all about choice.....CPI is meaningless to me. I look at how much I spend in different categories of my life and determine if what I received from that activity/material good is worth what I spent on it - if I still enjoy/need that but consider it too expensive, I then look for cheaper alternatives or adjust spending in other areas which aren't of as much value to me - very much along the lines of the process in "Your Money or Your Life."

I'm not surprised when one's personal rate of inflation decreases, espceially if there are patterns of frugality ingrained in their thought and behavior processes.

Deserat

Deserat

 

[mathjak107]

I'm not surprised when one's personal rate of inflation decreases, espceially if there are patterns of frugality ingrained in their thought and behavior processes.

Deserat



i love how you say CHEAP!

 

[justin]

Mathjak,

I found an old post of mine regarding inflation that may shine some light on why you're personal inflation rate is so much higher than the CPI.

http://early-retirement.org/forums/index.php?topic=3406.msg58123#msg58123

In a nutshell, the inflation rate for items consumed by your average millionaire went up 6.4% in 2004 versus 3% for the average Joe (CPI). For those really rich folks (net worth greater than $30 million), the inflation rate was 11.3%.

So if a large proportion of your expenses are luxury goods, you may be seeing personal inflation rates much higher than the CPI.

 

[mathjak107]

yep exactly why lifestyle is a very important component of the "real cpi"

 

[justin]

Mathjak, you're spending money like a rich guy. Use the 6.4% rich guy inflation figure and be done with it. In the meantime, us frugal folks on the board and the other 90% of the country who don't have much to spend will do just fine with the CPI.

 

[mathjak107]

well im not retired yet...still working and enjoying our toys.....but wait until we pull the plug in 3 years or so....then its different priorities........

 

[mathjak107]

thinking about it i took a look at our recent purchases....actually the road bikes my wife and i bought 2 years ago for 2500.00 each are still the same price,,,,the linn home theater we bought 2 years ago at 7500.00 is still the same...the dlp tv we bought last year is 600.00 less this year and the lease on the bmw truck we want this year is 100.00 bucks cheaper than last.....
sooooooooooooo know what all that means?........they were charging to much to begin with ha ha ha

 

[justin]

...the dlp tv we bought last year is 600.00 less this year...

dlp is so last millenium. Now it's all about super hi-def 100" plasmas. Wall-mount, of course.

 

[mathjak107]

a funny thing was in march's money magazine they did a story on my wife and i in the portfolio makover column...when they were doing the origional interview they asked what i thought we would need in income when we retire....my answere was about the same as now since the only thing we would have more of in retirement would be time and time cost money ...the editor wanted to know why if we enjoy biking and camping why we needed so much money...the answer was "well we just dont bike around the block...we take trips and stay in hotels and do all sorts of things.....and then there are our hobbies.........

 

[Jarhead*]

BTW - Anyone who has been on this forum for a few years, knows that I'm far from a tightwad!

I can verify that! Cutthroat spends money like a drunk sailor on liberty.

Come to think of it, Minnesotta Slick used to be a drunk sailor on liberty.

Love, Jarhead

 

[kramer]

Cut-throat distilled a lot of wisdom on this thread.

Kramer