Personal inflation rate?

[David1961]

How many people here calculate what their personal inflation rate is? I'm looking for ideas on how to do this. I have a spreadsheet where I have my monthly expenses listed since 1998. Then I add a column that calculates the expenses for the previous 12 months. Overall, it has increased (no surprise there). But, for instance, if I compare the 12 month period ending August 2012, I have a positive inflation rate and if I compare for the 12 month period ending Sept 2012, I have a negative inflation rate. So I'd assume that my personal inflation rate is near zero for the past year. Is it better to just look at the past year, or go back many more years? Is there a formula in Excel that will take the monthly totals and calculate my "net inflation rate" since 1998? Does this seem like an accurate approach?

Another complication is when I make a major purchase, like a car, it dramatically increases my "inflation rate" for that year even though in my opinion this is not really inflation. Maybe the best way is to spread out the price of the car over the course of several years so the monthly totals

 

[MasterBlaster]

Unless you buy the exact same items year after year, your computation isn't of your personal inflation rate but of your expenses.

And when items improve, over the years, then you need to add the improved value to your spending.

And when substitute items are available at differentially inflated rates then you need to account for substitition and subtract it from your expenses.

Also have you been tracking in the imputed vaue of your housing ?

All these issues are reflected in the (CPI) inflation rate that you seem to want to compare against.

 

[Mulligan]

Concerning major purchases, many posters have a fund set up to cover these "one time" expenditures, or amortize it over a yearly basis. I personally have enough money set aside for an emergency cost, but more than likely I will just pay it by making monthly payments ,such as a car, out of my monthly income. I would consider that a one time cost, not part of your inflation rate.

 

[David1961]

Thanks for the comments so far. I can see now where I'm really talking about my personal expense rate rather than inflation rate.

 

[ejman]

I've been retired for 10 years now. We record all of our expenditures using Quicken and I've found that our total expenditures have been remarkably constant from year to year if I remove exceptional expenses such as new cars. Our standard of living has been about the same for the whole period. We eat out about as often, entertainment, food choices, travel and so on pretty constant. From a personal standpoint I just don't see much inflation ( or deflation for that matter) over the last 10 years. With one exception - medical costs. Medical insurance has gone up significantly, of course, we are also 10 years older.

 

[Mulligan]

I've been retired for 10 years now. We record all of our expenditures using Quicken and I've found that our total expenditures have been remarkably constant from year to year if I remove exceptional expenses such as new cars. Our standard of living has been about the same for the whole period. We eat out about as often, entertainment, food choices, travel and so on pretty constant. From a personal standpoint I just don't see much inflation ( or deflation for that matter) over the last 10 years. With one exception - medical costs. Medical insurance has gone up significantly, of course, we are also 10 years older.

My expenditures have went down close to 10% a month mostly because I have had more time to focus on it. In last 2 years. I have refinanced home to a lower rate, actively shopped auto and home insurance, jawed down my price I pay to Internet and cable by convincing them I was leaving them, dropping landline, and changing cell phone plans. I would never have done these things while working full time. Probably knocked over $300 a month off my monthly expenses with no change in lifestyle. I could save maybe $10 bucks a month more if I bothered to use the coupons in the Sunday paper and could squeeze some $ by being more efficient in my home energy costs, but the low hanging fruit is gone now. Expenses will probably start to trickle up from here. Well maybe not just yet. Gas has quickly dropped about 50 cents a gallon here recently, so maybe the savings will continue for a while longer.

 

[traineeinvestor]

I don't attempt to track my personal rate of inflation but myself and DW do track expenses in various categories and I can say:

1. our food bills have increased steadily over the years - not sure how much of this is due to haveing two growing children and how much is due to higher food prices

2. cost of airfares back home each year is just short of double what it was in 2003

3. we spend more on computers, phones and other electronics than we ever used to. We get more, but we are spending more

4. the cost of medical and household insurance goes up every year

5. school fees per child per term have increased in each of the last three years

6. rates (aka property taxes) were flat for a few years and then took a big jump last year

7. taxi fares (we don't run a car) have more or less doubled over the last ten years, buses and MTR have gone up but not by as much

8. dial a dinner meals when I'm working late are up 50-60% over the last 4-5 years (with some expansion of the waist line )

9. interest rates on my mortgage are down....about 1% pa

 

[gauss]

I have been looking for a strategy to calculate my true personal inflation rate. My spending rate has been remarkably constant over 10+ years when I factor out 1 time costs and vacations. I have categorized quicken records going back over 15 years. My motivation for doing this would be to factor out the change in consumption that I have over the years.

My thought on how to do this would be to associate my categories with the CPI subcategories. I would then figure out my own personal weightings of the categories (as opposed to the national weightings used to calculate the overall CPI). Once I have done this then I can use my weightings together with the published changes in the CPI subcategories to come up with an overall personal inflation number.

My concern would be that inaccuracies in the correlations between my categories and the CPI subcategories may significantly degrade the analysis.

If anyone has seen a web site or a forum discussion that takes on this issue in a manner similar to this I would be interested in a referral to the location.

Thanks
-gauss

 

[ejman]

I suppose that the only way to get a true personal inflation rate is to buy exactly the same items and track their cost over a period of time with some sort of adjustment for technological improvement for item impacted by such. I question the validity of this approach on a personal basis. As consumers, we are constantly doing value judgments which result in substitutions, paying attention to sales and the cyclical nature of a lot the pricing mechanisms. I think that's why a lot of retired people are able to achieve a remarkably stable rate of expenditures with a constant standard of living regardless of inflation (within reason).

 

[haha]

I don't attempt to track my personal rate of inflation but myself and DW do track expenses in various categories and I can say:

1. our food bills have increased steadily over the years - not sure how much of this is due to haveing two growing children and how much is due to higher food prices

2. cost of airfares back home each year is just short of double what it was in 2003

3. we spend more on computers, phones and other electronics than we ever used to. We get more, but we are spending more

4. the cost of medical and household insurance goes up every year

5. school fees per child per term have increased in each of the last three years

6. rates (aka property taxes) were flat for a few years and then took a big jump last year

7. taxi fares (we don't run a car) have more or less doubled over the last ten years, buses and MTR have gone up but not by as much

8. dial a dinner meals when I'm working late are up 50-60% over the last 4-5 years (with some expansion of the waist line )

9. interest rates on my mortgage are down....about 1% pa

This has basically been my experience. If prices go up in the world at large, they go up in my world, unless I want to move downscale. I can't locate the magic mojo that some apparently possess.

Ha

 

[Mulligan]

I don't attempt to track my personal rate of inflation but myself and DW do track expenses in various categories and I can say:

1. our food bills have increased steadily over the years - not sure how much of this is due to haveing two growing children and how much is due to higher food prices

2. cost of airfares back home each year is just short of double what it was in 2003

3. we spend more on computers, phones and other electronics than we ever used to. We get more, but we are spending more

4. the cost of medical and household insurance goes up every year

5. school fees per child per term have increased in each of the last three years

6. rates (aka property taxes) were flat for a few years and then took a big jump last year

7. taxi fares (we don't run a car) have more or less doubled over the last ten years, buses and MTR have gone up but not by as much

8. dial a dinner meals when I'm working late are up 50-60% over the last 4-5 years (with some expansion of the waist line )

9. interest rates on my mortgage are down....about 1% pa

I would no doubt you feel the brunt Trainee, but in reference to Ha, it isn't so much magic as it what you personally are spending your money on. I travel probably 6 times a year, but haven't noticed any uptick, because I track airfare/vacation packages daily then strike when I hit a deal. Of course I am going on their selected dates but I have no problem with that 2) Property taxes up $11 since 2003 when I purchased home. 3) House insurance is cheaper than when I first purchased the home because I finally got off my butt and rate shopped. 4) Don't drive as much as I used too, and car hasn't had a repair bill in years so I haven't been hit in that area. 5) Health insurance up $3 a month since I retired. 6) Haven't incurred any medical costs so I have avoided those bill shocks. 7) The only real area I have seen costs go up are electricity a bit, and food, but food is not a big part of my budget. 8) Phone bill is lower now than it was 20 years ago, but I have avoided the urge to get a smart phone. I don't believe inflation is that low though for families like Trainee who is getting hit in the tough areas of providing for children and the whole range that entails, food, and purchased transportation costs.

 

[Animorph]

I've been on a fixed amount + CPI (SS version) budget since 2004. I skipped the 5.8% adjustment for 2009 and never added it back in. We're still way under budget, I think that margin has been increasing with time (older budgets were closer to actual than now). I'd say our spending is increasing a little slower than CPI.

 

[Bikerdude]

I've been retired for 12 yrs and my base spending rate has gone up 30% from where I started. I don't track inflation.

 

[imoldernu]

Hundreds of hours of planning for retirement... literally hundreds of pages of spread sheets, planning for the future. Detailed for inflation, when to buy and sell homes, cars, interest rates, SS kick in, Medicare, etc, etc.. from age 53 to age 90, all with a year end net worth figure for each year.

Almost nothing went as planned. Either income or outgo.

Each year, we use one number to check our plan. The year end net worth.

Despite the changes, for the past five years, we have been within 2% + or -, of the estimate. This past year, the actual number was with $2,000 of the plan from 1989.

That said, our plan is to not consider inflation in financial planning, by assuming that our net worth would balance out. So far, so good.

Am sure we must be missing something. We're probably
poor"... but don't tell my DW.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

 

[scrabbler1]

In my long-term ER budget spreadsheet, I split the medical expenses out from the rest of my expenses so I can assign a separate inflation rate to each one. This way, any large changes to my health insurance (and dental bills) won't pollute the rest of my rest of my far more stable expenses for tracking purporses.

 

[Mulligan]

In my long-term ER budget spreadsheet, I split the medical expenses out from the rest of my expenses so I can assign a separate inflation rate to each one. This way, any large changes to my health insurance (and dental bills) won't pollute the rest of my rest of my far more stable expenses for tracking purporses.

Although I don't make a spreadsheet, your above thoughts are why I continue to work part time and squirrel all that money away. Although I essentially have been spending nothing on health insurance after factoring in my HSA deduction, there are scenarios that may hit me hard. I have a $5500 deductible, and if I wind up in the hospital right before the end of the year, I could be out $11,000 right off the bat. I have to assume to be prudent, that I surely will have health costs 10-15 years from now that I do not have. Teeth? Who knows how much money you can spend on them. I am not the type who will say pull them and be done with it, so those implants could be costly if the need ever arises.

 

[Focus]

You might find this previous thread on the topic helpful:

http://www.early-retirement.org/forums/f28/inflation-shminflation-61994.html

 

[NW-Bound]

Hundreds of hours of planning for retirement... literally hundreds of pages of spread sheets, planning for the future. Detailed for inflation, when to buy and sell homes, cars, interest rates, SS kick in, Medicare, etc, etc.. from age 53 to age 90, all with a year end net worth figure for each year.

Almost nothing went as planned. Either income or outgo...

Yes, no reason to measure with a micrometer what will be chopped with an ax.

Very few things in my life happened exactly like I planned for. But then, of course my plan when I was younger and with a stronger entrepreneurial spirit might have been a bit optimistic. I still survived and am doing a lot better than many of my peers still stuck at megacorps (knock on wood), thanks to my cautious nature, and willingness to reduce standard of living when necessary.

Like a long-time poster here has often said, one needs to stay "mobile and hostile". And he always says "Heh heh heh" after that.

 

[obgyn65]

I agree with this.

Unless you buy the exact same items year after year, your computation isn't of your personal inflation rate but of your expenses.

 

[Brett_Cameron]

I have a spreadsheet with all of the major categories indexed with their own inflation rate. I use multiples of my deterministic projection rate of 2.5% inflation assigned to different categories. Each year, I reset the values for each category to actual and project from there.

Just another warm fuzzy to make me believe everything will be all right.

 

[Cobra9777]

I have a spreadsheet with all of the major categories indexed with their own inflation rate. I use multiples of my deterministic projection rate of 2.5% inflation assigned to different categories. Each year, I reset the values for each category to actual and project from there.

Just another warm fuzzy to make me believe everything will be all right.

Similar approach here. I have a spreadsheet with our planned budget for retirement. Next to each category of expense I have the corresponding inflation rate from the Bureau of Labor Statistics website for my region of the country. You can get as detailed as you want with this, down to the grade of gasoline that you buy, for example. I use the last 10 years historical CPI in most cases, but I also use forecasted rates for certain items like energy and medical. The resulting mix-weighted average, based on my expense profile, is 2.6%.

I'm 51 and planning to retire next year. I think the OP raises an important issue because: (a) each person's inflation rate will differ based on their spending habits, and (b) inflation is one of the most powerful variables in any retirement modeling over 30-40 years.

 

[Koolau]

Like many here, I have not been tracking inflation specifically. However, there are several major categories of expense that I have followed. I start with the assumption that NOTHING has gone down in price. I can't think of a single instance. There are items or perhaps categories on which I have not spent money this year, but I'm talking about price for value as a way to calculate inflation - not whether I gave up buying something because it's now too expensive (e.g., certain fresh fruits).

The things that come to mind on which I have a good handle include things like HOA dues and maintenance (up officially 8% this year from last); Electricity, about 15% (or more); Food out is up about 20% this year, but that's a bit deceptive. The places we eat have been holding their prices constant for about 3 years. Suddenly, most of them took a big jump. That IS one area we have cut back quite a bit because of price; Gasoline has gone up recently by about 10%, though I can't recall what it was at the start of the year; Medical has gone up about 50% this year, but will drop somewhat next year when our cost of Medicare goes back to "normal". The supplement always goes up about 8% per year on average; Car license was up 20% this year though that's the first big jump in a few years; "Food" (canned goods, bread, milk, fresh meat, etc. etc.) has easily gone up 30% in the past 3 years locally (includes smaller can/package size - VERY obvious to the casual observer); Car repairs up dramatically (parts and especially labor), though I can only guess it's been running 15% or more for the past couple of years.

So, a SWAG would be personal inflation is around 10%. I've heard that Hawaii rate of inflation has been much higher than the mainland, though I can't confirm that personally. I noticed significant cost increases on select items when we were recently on the mainland (year over year visits).

We have made some actual buying changes as alluded to above to "out flank" local inflation. In some cases we have simply stopped purchasing certain things which are not essential. So year over year spending is constant (or even down a little).

 

[haha]

I have been spending 15% of my total expenses not including income tax on food prepared at home. This will likely go up, even without food price increases (which I will get anyway), because since I now own a home outright and have no car, my other categories of expense have fallen. Really, with food it isn't so much what % it costs, but what it costs absolutely. Good food tends to cost money, although somehwat less if you pay the extra trasportation and home space costs to store a bunch of stuff you buy at Costco. Not for me though, the extra infrastructure would cost much more than the food savings, and anyway I like my current foodstyle.

Ha

 

[Mulligan]

I have been spending 15% of my total expenses not including income tax on food prepared at home. This will likely go up, even without food price increases (which I will get anyway), because since I now own a home outright and have no car, my other categories of expense have fallen. Really, with food it isn't so much what % it costs, but what it costs absolutely. Good food tends to cost money, although somehwat less if you pay the extra trasportation and home space costs to store a bunch of stuff you buy at Costco. Not for me though, the extra infrastructure would cost much more than the food savings, and anyway I like my current foodstyle.

Ha

That is a good point, as my initial thought after the first sentence was, wow you spend a lot of money on food. But I was comparing my personal food expense with my monthly net income which would be under 8%. But, comparing it to my monthly expenses backing out my mortgage and car expenses, I am right with you around 15%.

 

[audreyh1]

How many people here calculate what their personal inflation rate is? I'm looking for ideas on how to do this. I have a spreadsheet where I have my monthly expenses listed since 1998. Then I add a column that calculates the expenses for the previous 12 months. Overall, it has increased (no surprise there). But, for instance, if I compare the 12 month period ending August 2012, I have a positive inflation rate and if I compare for the 12 month period ending Sept 2012, I have a negative inflation rate. So I'd assume that my personal inflation rate is near zero for the past year. Is it better to just look at the past year, or go back many more years? Is there a formula in Excel that will take the monthly totals and calculate my "net inflation rate" since 1998? Does this seem like an accurate approach?

Another complication is when I make a major purchase, like a car, it dramatically increases my "inflation rate" for that year even though in my opinion this is not really inflation. Maybe the best way is to spread out the price of the car over the course of several years so the monthly totals

Check out my early 2012 post when I discovered that my spending after 12 years had only gone up 2.3% in total. Talk about a tiny personal inflation rate! This did not include the occasional one-off expense or major splurge, but it did include all the "regular" expenses and splurges. http://www.early-retirement.org/for...etirement-progresses-59692-2.html#post1163645