Calculate your personal inflation rate
Dear readers: two notices!
• April is Financial Literacy Month in Bermuda and in the United States and the UK features Financial Awareness Days in April and May (Canada’s Financial Literacy Month is November).
• I am hosting a financial literacy essay contest for five age groups of Bermuda residents – see full details and how to apply in the document under the “Related Media” heading on this webpage.
In writing this week’s article, the below listed concerns can absorb far more than a 1,000-word article, so rather than parrot on again to you about budgeting, keeping control of your money with so much uncertainty going on outside of your control, we’ll discuss these six concepts below over the next four weeks of Financial Literacy Month.
The personal impact from global economic and possible deglobalisation responses to the ongoing Ukraine invasion, inflation on consumers’ budgets, savings plans, interest rates, investments, risk protection and everyday lifestyles.
Global inflation
Global money talk of impending inflation is increasing. On reviewing more than 21 years of my articles for The Royal Gazette, it seems that there are always inflation concerns e.g., heightened during the sub-prime mortgage crises more than 15 years ago (2007). Countries’ central banks, Federal Reserve, etc, will employ financial tools at their disposal to control price escalations.
One wonders if inflation is just a fact of life, when revisiting the basic economic theory – that when demand exceeds supply, prices rise and when supply exceeds demand prices fall. Economics are never that simple, though, the subtleties of outside factors, shipping, labour, energy transportation, country regulatory processes and customs, interdependency on various countries production centres, and now war sanctions, can somewhat explain that even when demand remains fairly stable, the same goods and services are constrained so that prices will rise anyway.
Country inflation
The Bermuda Government’s Department of Statistics publishes the monthly Consumer Price Index based on nine expenditure groups:
• Food
• Rent
• Clothing and footwear
• Tobacco and liquor
• Fuel and power
• Transport and vehicles
• Household goods, services and communications
• Education, recreation, entertainment and reading
• Health and personal care
December 2021 stated a decrease month-to-month but noted that from the April 2015 basket cost of $100, in six years, the basket index now cost $108.60, an overall country-level statistic.
Your personal inflation rate may be, and is probably completely different and higher, too.
Personal inflation
Inflation is often quoted in average broad terms as to how it impacts a population as a whole. It generally doesn’t break down the real monetary cost of purchasing goods and services to a personal level. Try the family inflation calculator.
Make the cost of getting by, very real (and surprising to many families) by calculating personal family expenses as a percentage of the overall income level of the wage earners in the family.
You can calculate as follows using the simple chart (see the attachment under “Related Media” on this webpage). Please write to me if you would like a copy.
Keep in mind that these numbers are estimates! I don’t know what your costs are, only you do.
Here’s how it works.
Step one: list your estimated food, utility, transportation, health insurance and care, education, housing costs, etc, on a monthly basis.
Step two: estimate each of these cost categories in percentage terms of the total amount of your total net take-home salary by dividing each of them by your total take home pay.
Step three: estimate in percentages how much you think the various category of costs have increased year on year. Check my maths, too!
Step four: now multiply this percentage by your estimate of the percentage increase in costs due to inflation.
Complicated? Too much like the homework that you hated as a teenager.
You are correct! So, we’ll do the computations for you.
In this example, the family earns a modest salary, but inflation knows no sympathy, impacting them, nevertheless.
We are all impacted by inflation to some extent, but those working so very hard to make it up the financial success ladder are impacted far more. This family’s personal inflation rate takes a bigger chunk of their family budget than it would from a family that earns more.
When financial survival is contingent upon employment success, how can anyone have the time or the energy to consider alternative strategies to minimise the effect of shrinking dollars and then put those strategies into the family plan?
Inflation is an indiscriminate, unofficial tax that even with anticipatory planning cannot be completely eliminated.
Not exactly the best way to manage a family budget. As with any business – and running a family budget is a business – there are always two stark choices:
• Trim your expenses by the inflation rate
• Grow your revenue.
This purchase philosophy works only as long as you:
• Have a job in a growing industry
• Have a job that provides incremental raises above the rate of inflation
• Have a job that assists you in boosting your education and work skills upward
• Can control price increases in all of your expenses, a challenge in any economy.
Take away any of those factors and inflation creep erodes your daily dollar every single day.
Bermuda islanders are used to supply-chain, natural, and other disruptions. Nothing new at all, being remotely situated at the far end of the global supply line. We’ve developed and refined a 400-year trove of ingenuity, innovation, and survival techniques.
We know how to make do.
So, now we have to learn how to make do again, to preserve our way of life.
Time to put up clotheslines to cut energy costs, consider eating your lawn, and maybe catching a few of those feral chickens, if allowed in your housing complex. Readers, nothing facetious intended in any of these remarks.
Next week: interest rates, savings, credit.
Don’t forget! April is Financial Literacy Month promoting financial wellness across the globe with the seven basic concepts: earning, spending, saving, investing, borrowing, protecting, giving back, and most importantly – increasing financial knowledge by understanding your community/country’s economic environment.
• Martha Harris Myron is a former qualified international financial planner, and the author of Amazon and Apple Books published The Bermuda Islander Financial Planning Primers Series. Book One – the Dawn of New Beginnings: A Back-2-Basics Financial Review to Dramatically Improve Your Lifestyle. Contact: martha.myron@gmail.com
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