Calculate Your Personal Inflation Rate to Control Lifestyle Inflation
It’s easy to get stuck in spending habits. We think little of them, and they become automatic. There is nothing wrong with spending money , but if you want to spend more mindfully, it will help you understand your habits. Financial writer G.E. Miller suggests calculating your “personal inflation rate”.
You can probably imagine what this concept is in action, but as Miller explains, it basically involves using the economic concept of inflation and applying it to your own spending. Here’s how he suggests calculating this bet:
Personal inflation rate = value of all personal expenses in the last year / value of all personal expenses in the previous year.
Here’s an example in action:
- Your expenses in 2015 were $ 51,000.
- Your expenses in 2014 were $ 50,000.
- Your personal inflation rate = $ 51,000 / $ 50,000 = 1.02 (or 2%).
I do this exercise on my personal inflation rate every year because it helps me track my consumption habits at a granular level and notice long-term trends … If you’re not careful, insurance, grocery, dining, travel, entertainment, and different categories can indeed sneak up on you and lead to lifestyle inflation as your income rises.
This indicator provides useful information about your finances. You can compare it to wage increases, savings rates, or even just the actual CPI to help you make more informed financial decisions.
Miller also created a spreadsheet to help you calculate your rate. Check it out as well as more details on this concept in his article below.
Personal inflation: a measure that helps curb lifestyle-related inflation | 20SomethingFinance