There’s a lot of talk about inflation right now because the most recent inflation number was over 9%! However, this doesn’t mean that everything you spend money on has gone up nine percent. That’s where we get into personal inflation rates. Your personal inflation rate has to do with how you spend your money. According to the Department of Labor, the 9.1% inflation rate is the average of all items over the last twelve months. This means some things are higher than others. In order to get to your own personal inflation rate, you would have to measure the increases for where your money is spent.
Let’s take a look at a few items that are a part of the all items inflation rate1.
Food—10.4%
Energy—41.6%
Used Cars and Trucks—7.1%
Medical Care Services—4.8%
As you can see above, food and energy have increased significantly over the last twelve months. If these two items are large components of your monthly expenditures, then your personal inflation rate could be even higher than 9.1%. However, if your largest budget item is your mortgage, then don’t forget that the principal and interest parts of your monthly payment, do not change. So, if 25% of your expenditures are principal and interest, then 25% of your personal inflation rate is 0%.
For some more information on inflation, check out this previous post about inflation.
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As interest rates are rising, you are starting to see the difference in savings account rates. Your typical brick and mortar banks are not increasing rates as much as your online banks. Check out www.bankrate.com to compare interest rates for your emergency funds (make sure there’s FDIC insurance as well).
There’s also a lot of hype around I-Bonds as well. The inflation rate for I-Bonds is great right now, but you need to make sure you understand the mechanics for how these work too, which can be found here.
Inflation is a part of life and something that we all have to deal with. The important thing to remember is to look at your budget and see if you can make changes or substitutions to help combat inflation and to make sure you are including inflation as part of your financial plan.
If you need help with your financial plan, Financial Journey is here to help. Schedule a call with us today!
Financial Journey LLC is a registered investment advisor offering advisory services in the state of Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way to be considered investment or tax advice.
1 https://www.dol.gov/newsroom/economicdata/cpi_07132022.pdf