How to Calculate Your Personal Inflation Rate (and Why You Should Do It)
If you’ve even checked the news over the past few months (or tried to buy just about anything), you know that the United States is currently dealing with an inflation problem. Compared to the same period last year, food prices increased by 10.1%. Prices for new cars rose by 13.7%. Hotel prices increased by 22.2%, airfare – by 37.8%, gasoline – by 48.7%. In short, the prices of almost everything have risen significantly.
While it is true that inflation affects everyone, it does not affect everyone equally. For example, the price of buying a new car or filling up a tank is unlikely to affect you if you are a city dweller. Rising rents mean nothing to those who own land in rural America. This means that when you see headlines about how inflation has risen by 9% year on year, the effect it has on you personally can be higher or lower than that. But how do you know for sure? Doug Kinsey of Artifex Financial Group has created what he calls a “personal inflation calculator,” a tool for figuring out how to reevaluate your budget for the ever-changing inflation landscape.
What is your personal inflation rate?
Your personal inflation rate shows how inflation has affected your specific monthly budget. To find out your personal inflation rate, enter your bills into the Personal Inflation Calculator , which will then tell you what percentage increase you should expect for each item based on data taken from the Consumer Price Index. Kinsey explains, “The table I created uses some of the most common household spending categories and we can enter annual amounts for those categories. An inflation factor is then applied to each item, resulting in a price for that item or service in the current period. Then we sum up all these budget lines and calculate the individual inflation rate from the difference.”
This gives you a fine-tuned inflation rate for your own spending, not general information handed out by the Bureau of Labor Statistics.
Why your personal inflation rate matters
How inflation affects your budget will depend on small but significant differences in your spending. For example, if you heat your home with gas instead of electricity, inflation will affect your utility bill differently. If your travel budget is allocated to public transport rather than maintaining your own car, this will affect your budget in terms of inflation. If your high-cost budget items (like housing) have a fixed cost, i.e. mortgage payments, versus a variable cost, i.e. rent, this will affect how inflation affects your financial situation. By going line by line in this way, you will paint yourself a much more accurate picture of how you should allocate your money in the future.
It will also give you an idea of which positions should be held off to a later date if funds are not currently available. For example, if you have a budget set aside for your annual vacation, knowing how much you now have to pay for flights and accommodation will give you a better idea of whether the trip you envisioned is actually feasible.
How to Change Your Budget to Reduce Personal Inflation
If, after finding out your personal inflation rate, you want to change your budget, it is important to understand the difference between discretionary spending and non-discretionary spending. Non-discretionary expenses are items for which you really have no choice but to pay; this includes your rent or mortgage, insurance, car payments, utilities, etc. Discretionary spending includes non-essential expenses such as eating out or travel. In general, it’s easier to adjust to a budget that sees changes in discretionary spending, but here are some tips on how to reduce spending in both categories.
Utility bills. If you notice that your utility bills are getting out of hand, check out these tips on how to keep those costs under control. Simple things like changing your air conditioner filters, using less soap, and properly closing your refrigerator door can alleviate your monthly expenses a little.
Grocery account. While the overall cost of food has gone up, there are a few items that have come down in price over the past month . Ground beef, apples, and pork chops are just a few of the foods that can lighten your grocery bill a bit. If you want to eat out, there are also several chain restaurant apps that offer free groceries if you want to play their game, and here are the places where you can still win free kids food .
Travel expenses. If you want to get out of town this summer but are forced to cut your travel budget due to inflation, you have a few options. First, you can check out any of these alternatives which are cheaper than Airbnb . You can then fly with an airline that will not charge you for carry-on baggage . Or , instead, you can opt for a day trip to see the best of what your state has to offer.
Phone bill. It’s probably impossible to live without a phone, but you can make your phone bill cheaper . Simple steps like signing up for autopay, getting unlimited data, or choosing a family plan can reduce this fixed cost.
Streaming service account. If you’re looking to cut down on your streaming subscription costs, you may be eligible for a free subscription with services you’re already paying for . Second, if you have a college student in your family, you can qualify for big discounts.