Inflation, shminflation

[NW-Bound]

...over long periods of time the cost to stay current with standard of living improvements can be substantial.

... if you want to retire with a standard of living that is constant with the rest of society, that means your budget may need to grow above inflation.

Umm.... Didn't we call that "keeping up with the Jones"?

Heh heh heh...

As for me, it is not as much upgrading the "stuff" that I already have as finding new experiences that I would like to acquire. These newly discovered experiences cost money, and they often require "stuff" that I do not already own.

 

[Meadbh]

Umm.... Didn't we call that "keeping up with the Jones"?

Heh heh heh...

As for me, it is not as much upgrading the "stuff" that I already have as finding new experiences that I would like to acquire. These newly discovered experiences cost money, and they often require "stuff" that I do not already own.

Like space tourism?

 

[ERD50]

I think this is one of the most important posts I could read here. Assumed inflation is such a big driver in so much we are taught to consider when planning, saving and investing. I've experienced what so many others have posted, little to no rise in expenses and it's great to hear so many others have been able to manage their lives to achieve similiar results. I remember buying my desktop about 12 years ago for $1000 and recently bought a laptop that is so much more powerful for $300. Years ago if a car made it to 100k it was a big deal, my last Honda made it close to 300k. I know a lot of the results have to do with the mindset on this forum but that's just fine with me as I'm drinking the Kool-Aid.

I agree about the intermingling but the important takeaway for me is that many others are able to modify their spending, a lot of it using substitution, without negatively impacting their quality of life. It give me more confidence that whatever I encounter, I'll be able to continue to "manage" inflation.

I don't micro-manage my budget, but everything is paid out of one checking account (except our prop tax), and I have a set amount transferred into that account each month, and I have not increased that from 2004, and my balance is growing.

Numerous things have come down in price - like you say, there is a lot of mingling here - electronics come down, but we didn't even have some of this stuff years ago. Increased standard of living complicates the issue.

Now, we've had kids leaving the nest - maybe that accounts for some leveling of spending, but I really don't think an extra mouth or two adds considerably to the food budget. Even before they left the nest, they were eating at college for much of that time.

Both my medicines have gone generic, that's a drop. As others say, cars don't seem to have increased in price that much over 15 years, but they last longer (my 2000 Volvo is still in great shape with low miles), so probably lower TCO. You change the oil once/year with low miles, instead of every three months. Hardly anything else to do (100,000 spark plugs!), other than brakes and air/cabin filter changes (those filters I do myself).

Bottom line, I guess I'd say that quality of life is very good, and I have not seen overall costs rise much, if at all, over the past 8 years.

-ERD50

 

[marko]

I don't have cable, I don't have an I-anything. My only splurge is Sirius, because I can't understand what they are singing about on the mexican radio stations. My std of living may be going down. except I am happier than ever without those things.

I've been chronicling people with your mindset! Is your std of living really going down??

You've traded the 9 to 5 for perhaps a much better, balanced and sane lifestyle.

Yeah, on the surface it would look like a lower SOL, but are you better for it as a person? I'm not talking about living in a cave and dumpster diving but...do we need all that 'stuff'...'running to stay even'.

Sorry if off-topic.

 

[LeavingOhio]

This is a GREAT thread! I have long felt that people get TOO worked up over inflation. Especially when you are planning for retirement, there are lots of things that for me NOW at age 45 that will be different when I retire at age 60. I won't have kids living at home...I have 2 kids, and they eat a lot! The also are athletes in multiple sports in a pay-to-play school district, and the costs that add up for that is amazing.

Beyond the kids leaving the home though, I look back at some purchases I've made. In 1995 I bought a brand-new Saturn for $12,700. I just recently got rid of it and got a more expensive SUV, but in 2012, I could have bought several comparable cars to that Saturn for right on that same amount of money.

Nissan Versa Sedan - $10,990
Chevy Aveo Sedan - $11,965
Ford Fietsa Sedan - $13,200

Also, today's used cars are better than the used cars in 1995, so I could buy an even better car that is a couple years old for about that price.

Computers are WAY cheaper than they were in 1995; same is true for lots of technology.

Don't want to eat fast food too often, but you can get pretty much the same things for a dollar on their value menu as you did back in 1995, and if it's not a dollar, it's not much more.

So, when planning for retirement, if you retire when your kids are gone and you don't have a mortgage any more and you are debt free, you can get by on much less than you were while working when kids were home and you had a mortgage. Most "experts" say to plan for 70-80% of your current income for retirement, but I say if you do it right, you could live on much less than that even. Maybe movie tickets are more expensive, but I can always go to a matinee, or just rent it for cheaper and watch it at home; I get a front-row seat and the bathroom is cleaner!

 

[LakeTravis]

Property taxes are a big expense for us and they are inflating at over 5% per year.

That's the one that concerns me the most, even more than HC costs. Because it's a TAX, it's certain to increase over time and there is no escaping it.

I was just reading an article this weekend how property taxes in Austin have increased 38% from 2000-2010. We can pretty much count on paying 3% of the value of our home each year in property taxes. And if they need more, they'll increase the rate if the assessment doesn't go up in value.

There's a little known and even less utilized provision in Texas Property Tax code that allows 65 and older to "defer" property taxes. Not the Over 65 exemption, but an actual "you don't have to pay the taxes each year". Of course, they accrue and are charged 8% annual interest and must be paid when the owner expires or the property changes ownership.

But yes - property taxes are a huge portion of our forecasted ER budget with an even bigger forecasted increase.

 

[NW-Bound]

Like space tourism?

After you, madam.

For some people, it can be as simple as taking up skiing.

 

[Mulligan]

there is a real difference between inflation and living expenses. Many of you, since you're great shoppers and have time to look for deals have spent years without an increase in living expenses.

Some on the other hand have experienced both inflation and increased living expenses. Gas is about $3.50 a gallon.....ten years ago it was much less. The price of food has gone up, especially fresh veggies and fruit. Livestyle's have changed. Last week I spent $37.00 at the supermarket, this morning I saw a chubby guy in his 40's spent $41.00 at Starbucks.....I spent $1.90 on a small bold coffee. If a MacDonalds would have been nearby I would have just spent a buck. College....for grandkids....really has seen inflation......much more expensive that my youngest that finished just a few years, ago. And, I'm able so I'm helping pay for it. Have you checked out the price of a new mid size Toyota.....much more expensive and people are buying them.....I'm with somebody above, looking at a Kia Optima......less money than the Toyota.

So, my budget is up, I can afford it. yet, I buy house brands, skip the expensive Latte's at Starbucks, love less expensive Italian and Mexican restaurants....all things I don't mind giving up. Don't forget that the government would love to lower our Social Security inflation cost of adjustments each year...Do all of you think that should happen?
I'm lucky, I have my health, my family and enough to live on comfortably.....some call me cheap, some would think I waste money. I love the "cheapstate" idea forum....I love to save wherever and whenever I can. Keep the ideas coming but we do have inflation.....and, we can adjust our lifestyle expenses....great day to all!!!!!

My 2 biggest lifestyle adjustment expenses that I have driven down, are my housing and auto. Nine years ago I was spending about $1575 a month in this 2 including insurance and property taxes, and gas. Today it is about $975. Refinancing, going liability, just driving a low cost paid off vehicle, and less driving have been the reasons. Don't underestimate the power of controlling your vehicle expenses. In 2003 vehicle expenses was my number 2 expense, now it is not in my top 6.

 

[LakeTravis]

Don't want to eat fast food too often, but you can get pretty much the same things for a dollar on their value menu as you did back in 1995, and if it's not a dollar, it's not much more.

That one annoys me the most - we hardly eat fast food, in fact we hardly eat out at all, but a couple of times this year found ourselves in a Wendy's or Burger King or McDonalds and I couldn't believe how much a "premium" burger is now. For what they charge for a single non-value meal hamburger, I could buy a couple of pounds of ground beef.

I remember in 1990 the "Two for $2" Big Mac specials. Those are gone forever for sure.

Carry over into eating out and yes, inflation is very visible. $2.95 for a glass of iced tea? It's why I order water with lime now. College papers have been written on how IHOP can generate an average meal ticket of $15 using the cheapest of commodities like eggs and pancake batter.

I suppose in that regard I don't see inflation as much because we do less of those things that have become inflated.

 

[haha]

The government gives us their official inflation numbers. They have every reason to minimize this number; no reason to maximize it. So I think we can assume that if anything, this number is low.

So yes, there is inflation, relentless inflation. Recently a very bad employment situation has slowed inflation down. Some are able to not notice it because they 1)already own most of their need life goods 2)are getting older and less active or 3) are willing to rename what an economist would call downward modifications in standard of living to "budgetary flexibility" or whatever phrase seems ok.

Still, inflation is what it actually is. We can't just redefine terms and continue to use the same terms under this new definition.

Maybe the process being described might better be called Stealthy Downward Adjustments in Standard Of Living.

Ha

 

[NW-Bound]

The government gives us their official inflation numbers. They have every reason to minimize this number; no reason to maximize it. So I think we can assume that if anything, this number is low.

+1. As I try to point out, people slide down Bernicke's spending schedule without realizing or admitting it. No matter if it is good or bad, people generally tend to spend less as they age.

 

[Hamlet]

I think it is very useful for people to actually look at how the government calculates inflation.

They calculate it for different metro areas, and different populations of people (CPI-U vs CPI-W makes a big difference). Ultimately, all of these different calculations boil down to figuring out what people are buying, and in what amounts. When you get into the nuts and bolts, it is the weightings of the various categories that ends up determining the inflation rate.

There really isn't a general, all purpose "inflation" number. It all depends on what you are buying.

If you buy lots of health care, college tuition, and ribeye steaks, you are experiencing huge inflation.

If you buy lots of electronics, walk to work, and eat off of dollar menus, you are not seeing any inflation.

The headline numbers are the government's best effort at determining what the rate is as a group.

The government gives us their official inflation numbers. They have every reason to minimize this number; no reason to maximize it. So I think we can assume that if anything, this number is low.

So yes, there is inflation, relentless inflation. Recently a very bad employment situation has slowed inflation down. Some are able to not notice it because they 1)already own most of their need life goods 2)are getting older and less active or 3) are willing to rename what an economist would call downward modifications in standard of living to "budgetary flexibility" or whatever phrase seems ok.

Still, inflation is what it actually is. We can't just redefine terms and continue to use the same terms under this new definition.

Maybe the process being described might better be called Stealthy Downward Adjustments in Standard Of Living.

Ha

 

[audreyh1]

Well, I pulled out my receipts (via Quicken) and here are my grocery expenditures starting in 2007

2007 - $6,811
2008 - $6,722
2009 - $5,467
2010 - $5,939
2011 - $6,880
2012 - $3,112 ( 1/2 year)

We eat pretty much the same, in the same community since 1999 with nothing much changed in our way of life. Interesting though that there was a dip in 2009 and less so in 2010. I wonder if we were doing some subconscious substitutions (particularly in 2009) since the end of the world was at hand.

I actually think food prices dropped in 2010 and rebounded in 2011.

I looked at my Quicken records, and I see similar results!

I combined my grocery plus dining out expenses since some years groceries were down but eating out was up and vice versa. From 2000-2005 these expenses increased quite a bit. But from 2005 on they have been more or less steady.

Here are the comparisons to 2005 where 2005 is the "baseline"
2005 - 100%
2006 - 105% of 2005
2007 - 105% of 2005
2008 - 109% of 2005
2009 - 93% of 2005
2010 - 80% of 2005
2011 - 102% of 2005
2012 YTD - 40% of 2005

So even though ups and downs over the 7 years, last year was pretty close to 2005. We also dropped quite a bit in 2009 and 2010. I think we simply didn't spend as much time in more expensive parts of the country those years.

 

[ejman]

Just for the fun of it (Isn't Quicken wonderful) i got the grocery expense information for the period 2000 -2006:

2000 - $8,563
2001 - $7,474
2002 - $6,824
2003 - $5,470
2004 - $5,451
2005 - $6,681
2006 - $6,511

It's interesting to me to see the drop in expenses from 2000. We had just moved to SW Oregon from a large metro area and I think we were carrying on with the prepared meal mind set. By 2001 my wife had retired and I can see the grocery cost dropping.
I retired December 2002 and it was interesting to see the drop for 2003 and 2004 maybe we were adjusting subconsciously to the new no paycheck life? In any event it looks like we were back to "normal" by 2005 and haven't been changed much since then.

 

[haha]

If you buy lots of electronics, walk to work, and eat off of dollar menus, you are not seeing any inflation.

Especially if that dollar menu doesn't send you into the healthcare system!