Worried about Inflation? Read This First

by David Ning · 11 comments

A Mcdonald’s combo now costs $7 but it used to be less than $5. Then again, the McChicken sandwich used to cost $2.45 and it’s only a buck now.

Inflation is a phenomenon that most people hear about often. The media reminds us of it, our financial planners talk about it and if you need a play by play, just talk to grandma for the nickel Coca-Colas that they save their money to buy.

Inflation is real, inflation is scary and inflation will erode our purchasing power. But yet, inflation is exaggerated.

How So?

Don’t get me wrong. Our expenses do go up, but inflation is hardly the reason. We spend more because we managed to find a faster way to use our money. Cell phone? Not needed 20 years ago. Texting? Maybe in the last 10 years. Internet? Try 5.

Our expenses go up because we found more luxurious ways to spend out time. We needed more. Nono, we wanted more. And the companies that supply services? They are working 24/7 to come up with products that we don’t need… yet.

Want to mitigate the cost of inflation? Drive less and even higher gas prices seem less of a problem.

Retirement Savings and Inflation

Many financial planners like to use your current income as a gauge for retirement calculations. “In order to have similar spending power, you need to have X saved up by the time you retire.” Similar income? What if I save 50% every year? I don’t need to withdraw 100% of my current income and adjust the numbers yearly. If inflation is 2%, make that 1% for me.

  • Don’t save as much? How about not needing as much. If you still live in the same house, don’t complain about a higher utilities bill. Figure out why you need twice the space per person after you kids moved out.
  • Want to travel around the world? Perfect, but please don’t blame inflation.
  • Worried about inflation? Stop buying another TV and who cares how much they costs these days?

Look. Some expenses do go up. Gas, groceries are two that seem to go up without reason at times. Yet, that’s such a small part of our budget and if things do get out of hand, there are alternatives available. Organic food makes so much sense, but you grew up without it. If you can afford the extra cost, then buy it because you can and you want to.

Never blame inflation. Omega-3 eggs are healthier, but you didn’t need them before it was introduced to the market.

It is just a personal choice, and it’s all up to you.

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{ 11 comments… read them below or add one }

2 Cents January 11, 2010 at 5:51 am

I think what you’re addressing is lifestyle inflation and you’re right. That’s not the same thing as the macroeconomic phenomenon, and it’s also the one over which we have more control.

True inflation in the economy hasn’t been a problem for some time. In fact, many would say that we’re still in a very deflationary environment. Still, we can’t take for granted that inflation will remain low forever.

If it comes back with a vengeance due to recent money printing by central banks, we will need to adjust our personal finances to accommodate a higher interest rate environment.

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Minority Fortune January 11, 2010 at 7:38 am

You’re right in that the problem lies in not reacting to inflation but being proactive about inflation. As 2 Cents noted, we’ll be due for increased inflation rates when the Feds raise the interest rates. Until then, we should all be mindful of our spending and proactive with our money.

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Cd Phi January 11, 2010 at 9:38 am

So true. If we look at the way we’ve been living, I’m sure we’ll realize that there are many things that can be cut from our lifestyle because it is just excess. Sure, the price of a McDonald’s meal may have increased, but do you NEED the McDonald’s meal? You could probably do without it.

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marci January 11, 2010 at 11:52 am

Greed and gotta-have-it seem to be what causes the problems for most people.
No greed, and no gotta-have and a person does just fine – no need to spend much :) Again – grow a garden. Grow a garden. Grow a garden. There’s 1/2 your grocery bill right there. Or it could be – and you’d be eating a lot healthier :)

Your youth is showing a bit tho in this post :) (Nicely said there)
I actually had a cell phone over 25 years ago – a big old thing in a zippered case about 6x8x2 inches thick, with a battery about 6 times the size of a big cell phone today. And internet? Also remember actually having it in my house 15 years ago – and I had fought off getting it for a long long time before that…. but for doing geneaology research, it SURE was a big help living in this rural area.

Texting? My grandkids had to show me how to do it. lol.

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Matt January 11, 2010 at 2:06 pm

If we continue to create easy money, we’ll create false demand and if we do that, we’ll create inflation.
Still, I don’t believe anything is inevitable.

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Health Insurance Advocate January 11, 2010 at 2:30 pm

I like that you’ve centered your inflation numbers against the cost of a value meal. Nice.

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Ken January 11, 2010 at 4:53 pm

I need not blame anything but myself for my financial situation. I have allowed Wants to become Needs. It’s about being responsible for my own actions.

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John DeFlumeri Jr January 11, 2010 at 5:53 pm

That is being HONEST. We should not blame inflation, it’s us, and our spending ways, what we think we need.

John DeFlumeri Jr

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Robert January 12, 2010 at 9:30 am

I remember McDonalds used to have a hamburger for 29 cents on certain days (I think Wednesday). Yeah, try getting that these days.

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SFaith January 17, 2010 at 4:13 pm

I’m experiencing a type of inflation now that I’ve entered my middle years that I never thought about before: Age related inflation.

I find that the amount of money I must now spend to maintain my health has skyrocketed. I need prescription meds that I never needed before. I also have to eat a healthier diet than I used to. I don’t WANT to, I HAVE to.

Now that this process has begun in my life, I can foresee it continuing as I approach my golden years.

I think I need to adjust my retirement saving plans.

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Renard January 21, 2012 at 9:09 pm

I try (don’t always succeed) to keep my life as simple as possible for the exact reasons mentioned above. As Ray Davies of the Kinks sang, I too am “The Last of the Steam-Powered Trains”. I have no cellphone, let alone an I-Phone. The high cost of texting – doesn’t bother me a bit. I live in the Great Lakes Snowbelt, but have no snow-blower, because my snow-shovel works fine (isn’t hard to start, and uses no gas!).

Although I sometimes am concerned about inflation, and I am making financial preparations to deal with this, I definitely agree that lifestyle inflation is a bigger problem in contemporary America.

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