Your Personal Rate of Inflation (Destroying Inflation)

General inflation typically refers to the tendency of goods and service price levels to increase over time. Basically, one U.S. Dollar will buy you fewer loaves of bread than it did when your parents were born. Personal inflation is a subset of inflation that looks at our own (often rising) personal consumption choices over time. The general assumption portrayed by society and economists at large is that we need increasingly more (often higher priced goods) as we grow older. As we will see, we often have a lot more control over our personal rate of inflation than the economy at large.

inflationThe bottom line is that inflation in developed countries is overrated for efficient people and early retirees. In fact, I would make the argument that we can actually train ourselves to utilize our income more effectively as we gain more life experience. As we age, we gain a much better understanding of what our wants and desires truly are. We get better at understanding what is a need versus a want, and what luxuries actually make us happier. In addition, with a few lifestyle changes, we can position ourselves to maintain constancy while our peers’ personal consumption drastically increases over time.

Do Costs Really Go Up? True Inflation?
My grandmother liked to tell the stories about buying a candy bar for a nickel. My parents recounted the days when you could get an ice cold bottle of coke for 10 cents. My grandparents paid a little less than $7k for their 4 bedroom, 3 bath house in a quaint little neighborhood. It is hard to deny that costs have risen on many of the goods and services we use on a daily basis. If you have been to the grocery store recently you probably realize that some commodity groups (such as beef and some fish) have gone up drastically in the last few years. Will prices always rise?

Since you are reading this blog, you are much smarter than average. The good news about that is that educated individual’s incomes typically outpace inflation. Therefore, we tend to earn more money even as the cost of goods and services go up. But the news gets even better. We have a lot of choice in the modern world. If beef prices go up, we can choose to eat chicken or pork. If concert prices skyrocket, we can watch sports or find other forms of entertainment. If gas prices triple we can choose more efficient transportation. We have lots of different options in our lives.

But not everything goes up. In fact, the prices of a lot of goods have gone down dramatically over time! In fact, some would even suggest that we are all getting richer.  In fact there are 100s of examples, but here are just a few of the things that have gotten much cheaper over time: Cell Phones, Voice/Video Communication, $1/Calorie, $1/Gigahertz of Processing Power, $1/Airline Mile Flown, $1/Inch of TV, $1/Sq ft of Single Family Real Estate, Basic Medication, Books, and Music! Many of the former luxuries of middle and upper class can now be enjoyed by all! It is amazing the things we have the ability to access. In fact, the pace of technological change and innovation means that many awesome things are getting better, faster, and less expensive.

Becoming More Efficient Over Time
Instead of letting our lifestyles simply inflate over time, we can learn to be more efficient with our spending as we age. Just like gardening, you realize after a few years what will and will not grow in the space you have. The more efficient you become, the less trial and error it takes for success. If you realize that Trader Joe’s $6 wine makes you as happy as a fancier $14 bottle you can make future decisions based on that information. In essence, over time, we learn the things that make us truly happy. Once we have that figured out, it is simply a matter of allocating our resources effectively so they maximize the joy we have in our life.

At one point in my life I spent a lot of money on clothing. I would get new outfits all the time, especially during the holiday seasons. However, I’ve come to the place in my life where I’ve settled on a much smaller collection of high quality items that fit very well. I realized that I like clothing, but I would prefer a simpler wardrobe and allocate the excess money to other places. The other two areas where I’ve really shifted my spending would be gasoline and interest. I’ve realized that I get very little joy from spending money on fancy transportation and paying interest to other people. By strategically minimizing the cost of each, I’ve freed up money to spend in other areas that actually provide me with lots of satisfaction. We have actually achieved negative rates of personal inflation in many areas of our lives. And I’m more content and joyful than I’ve ever been.

The Appreciation of DIY Skills
Knowledge, memories, and education tend to appreciate over time. In addition, we have seen the prices of services and goods go up right along with everything else. We actually had some trouble with the sewer lines underneath our house a few weeks back. Have you ever called a plumber? In our area, it’s $125 an hour plus $75 if they get a tool off the truck. Plumbers are great and I’m glad that they exist. However, in our simple case, an hour or two of reading (and youtube watching) and $10 worth of supplies at Home Depot gave us a rudimentary understanding of exterior plumbing and the tools to fix our problem. Not only was our problem fixed, but the knowledge gained will be valuable for troubleshooting future problems as well.

The more skills we acquire, the greater freedom we have. Actually, one of my goals in life is to become the renaissance man of financial freedom. Learning a few technical skills can dramatically reduce the need for paying inflated service prices in the future. The less outsourced your life is, the greater you are protected from inflation. A few skills that we can learn to do: basic accounting, mow the grass, build a computer, fix a car, cook an awesome meal, brew a great cup of coffee, grow our own food, install dry wall, change a tire, plumb a toilet or fix an air conditioner. This simple little list will cost thousands of dollars in the future. However, the skills to learn them actually take very little time and tend to only grow more valuable as we age.

Contentment and Happiness
I’ve lived long enough to understand that having a fancy car does not make me happy. Unlike my 16 year old self, in my world now, I’ve learned that vehicles are not a status symbol as much as a cost to be minimized. Having a really fancy car just doesn’t bring me the satisfaction of spending that money elsewhere. I would much prefer traveling the world, working less, spending time with my family, and eating nicer food than driving away my dollars. We have the ability to become more efficient over time. Take advantage of what we learn about our likes, dislikes, and preferences. Strategies for preparing for the future include learning new things, enjoying plenty of different things, and investing in things that make us happy. What about you? Have you figured out how to minimize personal inflation?

One thought on “Your Personal Rate of Inflation (Destroying Inflation)

  1. After hitting 40 I began the processing of downsizing. I “completed” the accumulation of crap phase of my life. Not buying something can be more enjoyable than buying it. Sometimes I “almost” buy something. Research, comparison shop and then don’t buy it. I have pared down my clothing, jackets, shoes to a just above sparse level. It works. This was well written (again). Thanks for the time and effort put into putting this together.