inflation compared to yearly spending

[bluebelle]

I'm curious (I'm curious about alot of things - often takes me down various rabbit holes, but I digress)

I've only been closely tracking for a couple of years, and I know the act of tracking has probably reduced spending, so my numbers are probably not reflective of the impact of inflation.

For those of you who have been tracking for a long time, and whose spending is generally in a holding patter (ie not still trying to tighten the belt and reduce spending).....does your yearly spending trend upwards with inflation?  I recently read that yearly inflation is about 1.9% in Canada right now.    And I know costs vary by catagory, for example grocery costs are higher than that.

When planning for retirement, I use 2% for my yearly increase in spending due to inflation.  And once you have things tuned in, there's only so much you can do to reduce costs, costs for electricity, gas (heating), property taxes, grocery, as they go up.

Question:  Do you find that your annual spend tends to be in line with inflation?  (Assuming things are dialed in, and you're not taking preemptive measures, ie heating costs go up so you turn down the thermostat, grocery costs go up so you stop eating meat.)

[lthenderson]

Trying to track overall spending long term and comparing inflation effects is about impossible to do. To many variables change as we get older creating too much noise to extrapolate for inflation. We change jobs, get married, have kids, pursue different activities, etc. However if you track things on a micro level, such as groceries/person/year or gas/miles driven, etc., you can definitely see the effects of inflation.

[bluebelle]

Trying to track overall spending long term and comparing inflation effects is about impossible to do. To many variables change as we get older creating too much noise to extrapolate for inflation. We change jobs, get married, have kids, pursue different activities, etc. However if you track things on a micro level, such as groceries/person/year or gas/miles driven, etc., you can definitely see the effects of inflation.

I was trying to get a sense whether using 2% as a general inflation rate was a good variable for projecting future needs, all things being equal.  ie in retirement, no significant change in health etc

[Classical_Liberal]

Trying to track overall spending long term and comparing inflation effects is about impossible to do. To many variables change as we get older creating too much noise to extrapolate for inflation. We change jobs, get married, have kids, pursue different activities, etc. However if you track things on a micro level, such as groceries/person/year or gas/miles driven, etc., you can definitely see the effects of inflation.

I was trying to get a sense whether using 2% as a general inflation rate was a good variable for projecting future needs, all things being equal.  ie in retirement, no significant change in health etc

I track inflation in the US through the CPI.  My personal spending is not at all correlated with it, but I do know that given enough time it's cumulative effects will impact my spending.  I think using two percent is a bit on the optimistic side.  If you are trying to make projections 3-3.5% will better reflect the long term historical averages.

Inflation (like secular marker bulls and bears) tends to run in clumps.  Macro economic conditions at present are indicative of potentially higher than average inflation coming into play.  As a matter of fact, its whats driving the current market corrections.

[Prairie Stash]

Its a rough estimate for everyone at all stages of life combined. You will not match the average.For example, inflation includes tuition costs, are you ever going to attend University again? I own a house, but housing increases at 2%/year, does that  mean my housing costs will increase or will my mortgage stay fixed at $0?

In your own calculations, its not important what inflation is. It's the difference between Stock returns and inflation that's important. If you can lock in 10 years early on without increasing costs (0% personal inflation) the growth of your extra unused funds will compensate for future higher inflation.

Try this on, if you have 0% inflation for 10 years, followed by 4% inflation for 10 years the average is 2%. Would your total spending over 20 years be higher, the same, or lower than a constant 2% inflation increase? If you start by spending $40,000/year, after 20 years in scenario A, your total spending is $899,454. In Scenario B (2% annual) your total spending would be $971895 - $72,000 more!

Limiting personal inflation early on can have dramatic differences in retirement. Having an extra $72,000 in your accounts in 20 years is a valuable buffer. I didn't calculate the growth on that unused money either...

[Zikoris]

I've been tracking for about six or seven years, and the only thing that's gone up is my rent. But that's been offset by spending less money in other areas as I learn new skills and tricks and stuff, so my total spending has not actually increased at all.

Maybe six or seven years isn't enough data though.