How Will Inflation Affect Your 2022 Planned Spend?

[Finance Dave]

Pluses:
1) Higher than expected market returns
2) Pandemic has cut our spending significantly (no international vacations and fewer restaurant meals)
3) A very large portion of our budget is discretionary


Minuses:
1) Inflation impact is broadly noticeable and significant

We won't change much due to the pluses above. The only thing we might do is delay purchase of a new car since many dealers are adding on $10k to the sticker price due to low supply of cars. We can easily go another 2-3 years without a new car.

 

[Koolau]

I never really plan spending. We have a good idea (from experience) what expenses will be for the year. What we NEED to spend is a small part of what we DO spend within any year. Therefore, while inflation is worrisome, it doesn't have a lot of effect on our spending. Having said that, I'm sure most of our charities will be asking for more assistance due to needing to spend every penny on "inflated" things. (A small bible college we support has raised their estimated "mess" costs from $10K/year to $12.5K/year.) Their enrollment may have increased, but I think most of the increase is anticipated inflation. YMMV

 

[kingkarmann]

Definitely going to install solar in the next 6 months.
Energy costs above everything else is what concerns me the most.

 

[Rustic23]

Well, it’s going. To make those ‘how can I spend more “ threads a little easier to do

 

[youbet]

In rough and tough numbers, I'm thinking we'll spend close to 10% more in 2022 just to maintain our normal day-to-day living. That is, living the same way we did in 2021 will cost us about 10% more in 2022.

I am definitely not expecting these spending levels to ever contract. Inflation may eventually decline back to the 2% - 3% level we've enjoyed for some time, but there will be no deflation causing overall price levels to actually back down. They'll just slow down their rate of increase.

I'm going to go modify some of my FireCalc runs from using CPI to using a fixed 8% inflation level (ongoing) just to see what that would do to us.


EDIT: OK, just went to FireCalc and ran with 8% ongoing inflation instead of historical CPI. WOW! I shouldn't have been surprised as I've done similar before although years ago. My comfortable 100% success rate wasn't so comfortable anymore! Let's hope ongoing inflation goes back to historical levels and we haven't jumped the shark and moved into a new era of significantly higher inflation levels!

 

[txsman]

Gave myself a 1000 a month raise. Ought to take care of it. Not eating filets any more. Good to be retired and free.

 

[Koolau]

In rough and tough numbers, I'm thinking we'll spend close to 10% more in 2022 just to maintain our normal day-to-day living. That is, living the same way we did in 2021 will cost us about 10% more in 2022.

I am definitely not expecting these spending levels to ever contract. Inflation may eventually decline back to the 2% - 3% level we've enjoyed for some time, but there will be no deflation causing overall price levels to actually back down. They'll just slow down their rate of increase.

I'm going to go modify some of my FireCalc runs from using CPI to using a fixed 8% inflation level (ongoing) just to see what that would do to us.


EDIT: OK, just went to FireCalc and ran with 8% ongoing inflation instead of historical CPI. WOW! I shouldn't have been surprised as I've done similar before although years ago. My comfortable 100% success rate wasn't so comfortable anymore! Let's hope ongoing inflation goes back to historical levels and we haven't jumped the shark and moved into a new era of significantly higher inflation levels!

My gut tells me that this inflation will be around for a while - maybe as long as the late 70s/early 80s. Too much money chasing too few goods. Of course, I've been wrong before, so YMMV.

 

[Badger]

Thanks to my parent's guidance and example, my wife's agreement to my retirement planning, and the advice I have used from some of the folks here, the retirement funds we saved/invested are enough to take care of any issues that arise and not affect our standard of living and even allow for BTD and donations. So we don't anticipate any changes.


Cheers!

 

[Dtail]

My budget will be 1k less in 2022 on a yearly basis. Saving on car and umbrella insurance plus less monies spending on DGF's son. Increases in transportation, clothing, food and travel.
Good deal overall.

 

[ShokWaveRider]

We are surprisingly going to spend under $400 for food in December. I was really expecting it to be way more. if that is true our average for this year will be $423 a month, about the same as 2020.

Most expensive months were March with $724 and May with $519.

Auto Fuel costs average $38 a month vs $16 for 2020.

 

[iloveyoga]

Thanks to my parent's guidance and example, my wife's agreement to my retirement planning, and the advice I have used from some of the folks here, the retirement funds we saved/invested are enough to take care of any issues that arise and not affect our standard of living and even allow for BTD and donations. So we don't anticipate any changes.


Cheers!

Yes, this well said thank you!! I feel so fortunate not to have to worry about. In my younger days it would have been a concern.

 

[aja8888]

Inflation?

Well, I guess we will be paying a bit more for what we buy. I will try to cut back where it is obvious prices are jacked to take advantage of the inflation situation. We watch our spending as a general rule and that is how we got to where we are which is comfortably retired.

 

[Born2Fish]

Good time to have a 2.25% fixed rate mortgage.

I have followed the investment and spending advice of members here for a few years and have been richly rewarded.

I don't see a need to change anything.

 

[audreyh1]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

Same here.

Yes, I’m spending more on some items noticeably food. But we’re still way under budget.

I take the same percent out of the portfolio each year regardless of inflation. If my portfolio doesn’t keep up with inflation, then my income will gradually shrink.

 

[Magus]

My gut tells me that this inflation will be around for a while - maybe as long as the late 70s/early 80s. Too much money chasing too few goods. Of course, I've been wrong before, so YMMV.

This is my base case scenario as well - basically a repeat of the late 70s/early 80s. The thing is that inflation only got under control then when the Fed funds rate increased to double digits. I don't know if our current fed reserve will do that since I don't think our fed government can handle 5% cost of debt, much less 15%. Once inflation expectations start, its hard to get the genie in the bottle. It's also the reason why I encourage folks to keep investments in real estate even though its already done well b/c RE tends to do better in inflationary periods than equities do. Of course, having both equities and RE is best!

 

[daylatedollarshort]

I bought some TIPS at the last auction. The high price hurt a bit. However, DH and I discussed it and with the labor shortage it doesn't seem like inflation is going to go down any time soon in the U.S. and the rates are still much better than most other fixed income investments. Current inflation = 5.7%, breakeven, inflation between regular Treasuries and 5 year TIPS = ~ 2.7% inflation rate on the date we put the order in - 5 Year TIPS/Treasury Breakeven Rate (ycharts.com). We still have a lot of TIPS bought at lower prices that are outperforming inflation, but as they mature we're going to have to develop a plan B going forward.

I think buying I-bonds for us and gifting them to the kids will help on the inflation front, since those don't have the negative yield issue - just the annual purchase limits. Plus we can start withholding more for an extra $5K.

 

[Fermion]

I'd love to see a change in the law that allowed buying of I-bonds in a IRA or 401K with no limit, which would help put those type of retirement vehicles closer on par to COLA pensions and such. Should I hold my breath?

 

[foxfirev5]

I'd love to see a change in the law that allowed buying of I-bonds in a IRA or 401K with no limit, which would help put those type of retirement vehicles closer on par to COLA pensions and such. Should I hold my breath?

I would put hard money on that not happening. I don't even see a reason why the treasury would be offering these. However I'll still take whatever crumbs the small guys get and keep buying.

 

[Hamlet]

I’m sure we will spend more next year than this year, but I don’t think it is likely to alter much that we do significantly.

The one change I am making involves my comic collecting hobby. I’ve collected vintage comics for a long time, and there has been a general upward trend in prices of key books for decades, but in the last few years they have gone parabolic ( like many other collectibles, I might add ). Many books that I bought for hundreds are now worth thousands.

So I am a net seller now rather than a net buyer. I just can’t justify buying new key books at these prices. Likewise, there are a lot of books in my collection that I don’t really want to own more than the money they can be sold for now.

I’ve been scratching my collecting itch by buying some super cheap books that I have some interest in but aren’t really considered worth collecting by the general collecting community. I used to spend about a net $250/month on comic books. I will probably sell a net $500-1000/month this year.

 

[DCdave]

Total Stock Market Index is up 23.65% YTD resulting in appreciation that vastly overshadows, in a positive way, the inflation premium I paid for goods and services this year.
So far so good. What does the future hold? Who knows?

 

[cyber888]

For 2022, I was able to cut expenses.
Home Insurance and Car Insurance is cut by $500 yearly. Went with another insurer. My only fear is real estate tax increase in August.
Last year, I was paying $400/mo for my Home (Heloc, no mortgage), now it's down to $265/mo.
Internet, TV, Phone - remains the same at $172/month
We only buy tons of steak when there is a sale and keep it frozen. Pre-pandemic, T-bone or Rib eye was $6.99/lb when on sale, now T-Bone sale is $7.99/lb - still very good, while Rib eye is now $14.99/lb (bad).
Gas - I admit we don't drive as much now, except for grocery and travel.
Movie - Bought an 85 inch screen Sony TV last month w/ direct led array. We don't watch movies now, and figured an 85 inch screen should do fine. Save us $60-$80/month or $720-$960/year for movie theater.

By the way, STOCKS are still the best hedge against inflation compared to Bonds or Savings Account. So, keep your portfolio mostly in stocks.

 

[DrRoy]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

+1 more. Having completed a number of renovations over the last 4 years and replacing the car, our spending will drop noticeably for 2022. I only took a 2.25% WR for next year, which includes some extra.

 

[mickeyd]

Inflation has no effect on our spending...so far.

 

[Out of Steam]

Yes, I’m spending more on some items noticeably food. But we’re still way under budget.

Similar for us. Food is the main place where we're spending more, but our overall budget is fine. With COVID increasing again, we can't travel or have discretionary home repairs done, eliminating two major budget items.

With two older cars, our main concern is having to replace a vehicle too soon or making major repairs, but we could safely increase our retirement account draws enough to buy a modest new car.

 

[Fermion]

Still building our house so we are seeing a lot more inflation related expenses than the rest of you guys. We are about to start wiring and wire, breakers, etc. have gone up A LOT.

Stew meat in the grocery store is up at least 20% if not more, as well as ground beef. The strange thing is that very expensive cuts of meat like filet are not up nearly as much as something like top sirloin percentage wise. "Let them eat filet" I guess.

Medicine is going to go up for everyone. I am seeing it in the biotech investing where COVID has delayed drug trials and created a lot of extra expense for drug research. You be silly if you think they are not going to eventually pass that cost on to you.