Looking for suggestions

[justin]

In the "Change in CPI Calculation" thread that was linked above, I also posted this about inflation for the well-to-do:

http://early-retirement.org/forums/i...58123#msg58123

In summary, millionaires have seen twice as much (or more) inflation as that shown by the CPI. The CPI is an average for everyone in the US.

Sailor, you just might be experiencing a higher inflation rate because your spending is different than what the index represents. Specifically, most people don't have airplane, boat and massage expenses.

[sgeeeee]

Quote:

Originally Posted by sailor Sorry, I should have posted the years for all the prices. And wabmester is right - these are annualized numbers. The formula I use is: ( (new price / old price ) ^ ( 1 / number of years elapsed ) -1 ) * 100 % For example massage changed from $37 to $65 during last 7 years, so: ( ( 65 / 37 ) ^ ( 1/7 ) -1 ) * 100 = 8.38% sailor

This doesn't help me much. Take a simple budget case for me: one year I get involved in a lot of local activities. I travel infrequenty. I eat at home (buy groceries), drive relatively short distances, do a lot of home and yard work . . . The next year I'm traveling on camping trips 30% of the time which involves gasoline, camping fees and gear, wear and tear on my auto, eating on the road, etc. The next year I get opportunities to visit Europe, meet relatives on a trip in Alaska, and spend some time with friends in Washington, DC. My costs include airfare, hotels, upscale restaurants, tourist admissions, . . .

Now apply a formula to come up with personal inflation rate. I can easily calculate how much toothpaste has inflated in cost, but it doesn't have any meaning as a personal inflation rate.

[sailor]

Quote:

Originally Posted by ((^+^)) SG I can easily calculate how much toothpaste has inflated in cost, but it doesn't have any meaning as a personal inflation rate.

I think we are talking about two different animals.
Infaltion for me is how much more per yer in nominal dollars something changes price.
(A toothpaste is a good example, while we still have teeth )
You are talking about elastic budget (with a lot of dicretionary spending - which is good IMHO ) - not a personal rate of inflation.
Inflation in your example would play a role as in "How much more would cost me this trip to Europe if I postponed it for two years from now?"

sailor

[sgeeeee]

Quote:

Originally Posted by sailor I think we are talking about two different animals. Infaltion for me is how much more per yer in nominal dollars something changes price. (A toothpaste is a good example, while we still have teeth ) You are talking about elastic budget (with a lot of dicretionary spending - which is good IMHO * ) - not a personal rate of inflation. Inflation in your example would play a role as in "How much more would cost me this trip to Europe if I postponed it for two years from now?" sailor

I think we are still talking about different things.* While I can quantify the inflation rate for toothpaste and a few other essential items, such a calculation falls short of defining a personal inflation rate.* Unless everything I buy during the year is the same as in the previous year, my personal inflation rate is difficult to quantify in a meaningful way.* And because of that, I don't understand how people can compare their year to year spending to a CPI calculation and draw meaningful conclusions.* Look at this another way:

Personal Spending as a percent of total:

ITEM. . . . . .. . . . . . . . . . . . . .YEAR 1. . . . . . . . .YEAR 2
FOOD AND BEVERAGES . . . . . . . . . . . . 10%. . . . . . . . . 12%
HOUSING . . . . . . . . . . . . . . . . . . . . . . .15%. . . . . . . . . 13%
APPAREL . . . . . . . . . . . . . . . . .. . . . . .* .5% . . . . . . . . .* 2%
TRANSPORTATION . . . . . . . . . . . . . . . .10%. . . . . . . . . 13%
MEDICAL CARE . . . .. . . . . . . . . . . . . . .15% . . . . . . . . .19%
RECREATION* . . . . . . . . . . . . . . . . . . . 20% . . . . . . . . .16%
EDUCATION AND COMMUNICATION* . .15% . . . . . . . . . 16%
OTHER GOODS AND SERVICES . . . . . . 10% . . . . . . . . .* 9%
TOTAL SPENDING . . . . . . . . . . . . . . . . $64K . . . . . . . . .$62K

Are the changes from year 1 to year 2 due to inflation of some items more than others?* due to changes in spending requirements? due to changes in your buying habits (better shopper, new interests, etc.)?, due to infrequent purchases that should be averaged over the life of that product (car, appliance, for example)? . . .

What is your personal inflation rate based on the table above?*

[sailor]

Quote:

Originally Posted by ((^+^)) SG What is your personal inflation rate based on the table above?

You haven't posted enough information for me to calculate it
When I posted mine it was a weighted average of most spending categories.
Where I had the data in Quicken (single transaction spending like hangar rent or a hair cut) I calculated it, where I didn't I extrapolated from few points I had (groceries inflation for example was extrapolated from the few receipts I dug out from '98 shoe box and few recent grocery receipts).
I haven't decided how should I treat big ticket items (like buying a house or a boat).
I could either depreciate it through the useful life of the item (let's say 30 years for a house and a boat), measure inflation on a replacement value and in calculating personal rate use the depreciation value from this year as a weight, but this would not be correlated with your money flow, since you probably have fixed mortgage on your house and bought your boat for cash)

Quote:

I don't understand how people can compare their year to year spending to a CPI calculation and draw meaningful conclusions

I understand your difficulties with non-repetative purchases (like vacations in Europe).
I guess one way to calculate "annual inflation rate" for such a purchase, would be to check the price of such thing in the previous year (I'm not saying this would be easy or even worthwhile task).
On the other tentacle - if your spending patters are truly random and tootpaste is the most repeatable purchase, than "personal inflation rate" is probably not of much use to you - I hope to be there too someday, probably retired on a boat

[sgeeeee]

Quote:

I understand your difficulties with non-repetative purchases (like vacations in Europe). I guess one way to calculate "annual inflation rate" for such a purchase, would be to check the price of such thing in the previous year . . .

Well, I still don't understand your calculation. I don't think any of my purchases are repetative. Do you buy the same amount of toothpaste every year? of toilet paper? pork chops? gasoline? milk? . . .

When I go to the grocery store, I buy what I need. Today I might buy mushrooms and coffee. Next week I buy peppers and onions. The following week I buy mushrooms again, but the price has gone down. The following week mushrooms have gone up in price. It goes up and down depending on season, availability, etc. So how can you estimate your grocery inflation from a few sample receipts? Even if I have all my receipts, I didn't eat the same thing number of mushrooms this year as last. Because I traveled more this year, I ate out more and bought fewer groceries. How do I calculate inflation rate on groceries?

And what happens if you change habits? What if I learn that I've been using too much toothpaste when I brush my teeth. Recent dental studies indicate that I should cut my toothpaste usage in half. So what is my personal toothpaste inflation rate? The percentage increase in average cost of a tube? How should that be weighted? Or is my personal toothpaste inflation a negative number because I've cut usage in half?

I guess till I see the details of a personal inflation calculation, I'm skeptical that anyone can calculate a meaningful number to compare to CPI.