Our lives are filled with purchases that seem to get more expensive each year. This inflation can range from the fuel we purchase for our vehicles to the cost of our health care coverage and medical costs.
Much of the time these costs go up year-over-year, sometimes significantly so. Occasionally these costs go down. Other items like gas for our vehicles or utility costs for our home can bounce back and forth, rising or falling almost every time we pay for them. However, over time, all of these costs tend to increase, but their volatility can make it hard to gauge just how much they are increasing. This is why developing a personal inflation rate can help even the playing field.
Variable inflation rates
Inflation rates can range widely based upon the things we buy regularly. Things like fuel, energy, and health care costs can be more volatile and change regularly, increasing or decreasing in price. These prices might easily go up or down 10 or 20 percent in a year. Meanwhile, there are costs that are more stable and whose rates change more slightly such as clothing, rent, and certain food products.
This can make if difficult to get a handle on exactly what inflation is doing since it is constantly in flux.
The government range
The federal government tracks inflation, which can be helpful in determining inflation’s broader, more far-reaching effects. However, the CPI (consumer price index) is national and can encompass areas and spending habits nationwide and that are far different from what your personal spending habits might be. This is why having a personal inflation rate can be so critical to leveling the playing field when it comes to inflation and your own spending.
What’s needed to develop a personal inflation rate?
So what exactly is needed to develop a personal inflation rate? Well, critical to the process is expense tracking. To understand how costs are increasing, you must first understand what your costs are and in what amounts they are incurred. Whether by gauging such data electronically, through gathering bills at the end of the month, or by jotting expenses down as they occur, expense tracking is integral to determining a personal inflation rate.
The longer the better
While tracking costs over a few months or even a year is good, pushing this process out over a period of years can make gauging personal inflation much easier and more meaningful. Being able to see how costs increase not just month-over-month, but year over year means that you can develop a more refined inflation rate that mirrors your lifestyle and spending rather than that of the entire nation.
In this way, you can then begin to look not only for ways to reduce expenses, but also better plan and forecast for the future based upon the average of how much your cost of living will likely increase each year.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.