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Ways to Calculate Your Personal Inflation Rate

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At the time of this writing, the inflation rate for the nation is 8.5%, the highest it has been in four decades. However, that doesn't mean it is your personal inflation rate. It could be much lower. On the other hand, it could be much higher. Before you start worrying, it would be better to find out what your personal inflation rate is.

Inflation: Definition

Before you can understand your own personal inflation rate, it would be helpful to understand what inflation is.

Because bread, milk, eggs, and gas cost more today than they cost in the past, that’s inflation. If you don't usually purchase those items, they should not be included in your personal inflation rate.

Inflation describes the rapid rise in prices and slow decline in purchasing power of your money over time.

Inflation Rate Not the Same for Everyone

Even if inflation is affecting almost everybody, it is not affecting everybody the same way. There is a way to determine how much inflation is impacting your life. Everybody earns, spends, and saves differently. Therefore, your personal inflation rate is almost certain to be different from others.

The nation's inflation rate has increased to 8.5 % since this time last year. However, your personal inflation rate might have increased more or even less than that. General news is reported about the country's inflation. Some of it does not apply to you.

Remember these things:

  • Inflation depends on how much you earn.
  • It involves how much you spend.
  • How much you save also affects your inflation rate.

Why You Should Know Your Personal Inflation Rate

It is important to know your personal inflation rate for two major reasons:

  1. When you know your personal inflation rate, you will not worry about inflation. You will know you are on the right track.
  2. When you don't know your personal inflation rate, you will not know what you should to do to lower it.

Personal Inflation Rate

Your personal inflation rate depends greatly on how much money you make, how much you spend, and how much you save.

You can understand that everybody's personal inflation rate is not going to be the same because every household has different salaries, expenses, spending, and saving habits.

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People's basic expenses are things that are usually the same every month such as housing, car expenses, insurance premiums, food, energy usage, water, school tuition, telephone, cable, and WiFi.

Discretionary expenses include things consumers can adjust their spending on, such as travel, movies, eating out, ordering in, club dues, magazine subscriptions, cigarettes, and alcohol consumption.

There are several ways to calculate your inflation rate. Some are more complicated, but the one illustrated below is very simple.


A Simple Way to Calculate Your Personal Inflation Rate

According to the Today show on Wednesday, August 17, 2022, CNBC Senior Personal Finance Correspondent explained in a simplified way how to calculate your personal inflation rate. See the screenshot above and listen to the video below.

  1. Add up what you spent on goods and services for the last full month.
  2. Compare what you spent on the same goods and services the same month a year ago.
  3. Subtract your total spending for that same month last year from the same month this year.
  4. Divide that difference by your monthly expenses for this year.
  5. The result of that is your personal inflation rate.

Your own personal inflation rate might be quite different from the national average you are hearing about. Your own personal inflation rate will help you much better.

Ways to Lower Your Personal Inflation Rate

If you are bothered by a high personal inflation rate, there are definitely some things you can do to lower it.

  • Trim some spending. Every household has about 10% of spending that can be trimmed. Buying groceries is a basic need, and not much can be trimmed from buying food. However, dining out and ordering in are discretionary food costs that can be cut.
  • Earn more money. Get a side hustle or a part-time job.

The typical American family is spending about $450 more per month on goods and services than a year ago, according to Moody’s Analytics Chief Economist Mark Zandi.

That is true. This writer calculated her personal inflation rate and discovered that she spends $454 more per month now on goods and services than she did a year ago.

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