First Person: This Is Exactly Why I Gauge Our Personal Inflation Rate

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A recent article on Marketwatch, by Dennis Miller (no, not the well-known comedian), highlighted something I've known for a long time, that government statistics regarding inflation don't always align with our own personal inflation rates.

The article references John Williams' Shadow Government Statistics and uses an example based upon receiving a $1,000 Social Security check. It compares the buying power of this amount based upon government inflation numbers and "shadow" numbers, going on to say,

"The government is telling you it took $1,315 to purchase the same amount of goods in 2012 that $1,000 purchased in 2002. Meanwhile, Shadow Government Statistics says it would take $2,100 to get the job done. Even if you think that number is a bit extreme, it's hard to deny that the government's inflation numbers are inaccurate."

While this particular article focuses on how the government determined statistics on inflation are affecting seniors, I feel these statistics can affect just about anybody, young or old, including me and my own family. This is exactly why I gauge our personal inflation rate.

How We Gauge

Gauging a personal inflation rate over time isn't always the simplest thing to do. Personally, I've been tracking my expenses since college, so this certainly helps me see changes in costs over the years. With such tracking it's relatively simple to see changes in things like housing, utilities, and transportation. However, there are difficulties that I've encountered along the way. Adjustments in family in lifestyle -- things like kids, buying a home versus renting an apartment, and living location (i.e. state/region) -- can play a role in how our costs change over time.

However, I tend to look at costs as costs, and inflation -- whether due to personal choices or economic factors -- is inflation. While there might be peaks and valleys over time, gauging these costs for almost two decades now allows me to see not only year-over-year changes and adjustments due to living and family situations, but smooth these trends out to get an overall average.

Adjustments I've Made Lately

There are certain things that my wife and I tend to separate out when it comes to costs. The most important of these are childcare and health care. Since (as a work-at-home dad) I handle the kids during the day, thereby saving us on childcare costs, my wife picks up our health insurance and transportation costs. And while I've been great at tracking my own expenses, as well as those of our shared costs like utilities, housing, food, etc., I haven't gauged as closely the health care and transportation costs that are incurred by my wife over the past few years. Unfortunately, these costs are several of the most important when it comes to inflation. Therefore, I've been making more of an effort lately to track these expenses in order to get a more accurate gauge of our family's overall personal inflation rate.

Why Knowing Our Personal Inflation Rate is Important

Some people might wonder why knowing our personal inflation rate is important. Well, it's more than just the right to say that the federal government is wrong when it quotes us a particular CPI based inflation rate when it comes to our family's spending.

First off, tracking all our expenses helps us look for ways to cut costs and better ways to spend our money. But more than that, understanding our personal inflation rate pinpoints the areas in which we spend that are increasing the most, so that we know where our "flashpoints" of rising costs are and where we might want to drill down to look for ways to reduce spending in those particular areas. It also helps us with our financial planning, being able to use our personal inflation rate to forecast costs moving forward and better plan and invest for our retirement.

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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.


Miller, Dennis. "High inflation and low rates squeeze retirees". January 28, 2013. January 29, 2013.


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