How to Calculate Your Personal Inflation Rate (and Why You Should)

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If you’ve checked the news even once over the past few months (or tried to buy basically anything), you know the United States is currently dealing with a bit of an inflation problem. Compared to this time last year, the price of food has gone up 10.1%. The price of new cars has gone up 13.7%. The price of hotels has gone up 22.2%, airline fare has gone up 37.8%, and gas has gone up 48.7%. Long story short: The price of just about everything has significantly gone up.

While it’s true that inflation hits everyone, it doesn’t hit everyone in the same way. For instance, the price of buying a new car or filling up your tank is less likely to affect you if you’re a city dweller. The rising price of rent means nothing to those who own land in rural America. This means that when you see headlines about how inflation has gone up 9% year-over-year, the effect it has on you personally could be higher or lower that than. But how do you find out for certain? Doug Kinsey of Artifex Financial Group created what he calls a “personal inflation calculator”a tool for figuring out how to reassess your budget around the ever-evolving landscape of inflation.

What is your personal inflation rate?

Your personal inflation rate is how inflation has affected your specific monthly budget. To find out your personal inflation rate, enter your bills into the personal inflation calculator, which then will tell you what percent increase you should expect on each line item based off data taken from the Consumer Price Index. Kinsey explains, “The worksheet I created takes some of the most common categories of household expenditures and allows us to enter annual amounts for those categories. The inflation factor for each item is then applied, resulting in an estimated price for that item or service in the current period. We then total all of those budget items up and develop a personal inflation rate from the difference.”

This gives you a fine-tuned inflation rate for your own expenses, rather than the blanket information doled out by the Bureau of Labor Statistics.

Why your personal inflation rate is important

The way inflation affects your budget is going to vary based on small, but significant differences in your spending. For example, if you heat your home with gas instead of electricity, your utility bill will be affected differently by inflation. If your commuting budget is allocated to public transit instead of maintaining your own vehicle, that will affect your budget in regards to inflation. If your high-cost budget line items (like housing) are a fixed cost, i.e. mortgage payments, versus variable cost, i.e. rent payments, that will factor into how inflation will affect your financial situation. By going line-by-line in this manner, you’ll paint yourself a much more accurate picture of how you should be allocating your money going forward.

It will also give you a sense of what line items should be put off until a later date if the funds aren’t currently available. For instance, if you have a budget set aside for a yearly vacation, knowing what you’ll now have to pay in airfare and lodging gives you a better idea of whether the trip you have in mind is actually feasible.

How to change your budget to curtail your personal inflation

If, after figuring out your personal inflation rate, you’re looking to alter your budget, it’s important to understand the distinction between discretionary spending and non-discretionary spending. Non-discretionary spending are items you don’t really have a choice but to pay; this includes your rent or mortgage, insurance, car payments, utilities, etc. Discretionary spending includes optional spending, such as dining out or travel. On the whole, it’s easier to adjust to a budget that sees changes in discretionary spending, but here are some tips for how to lower spending in both categories.

Utility bills. If you’ve noticed your utility bills are getting out of hand, take a look at these tips for how to keep that cost in check. Simple things like changing your air conditioning filters, using less soap, and making sure your refrigerator door is properly shut can give you some relief on this monthly expense.

Grocery bill. While the overall cost of food has gone up, there are several items that have seen price decreases in the last month. Ground beef, apples, and pork chops are just some of the foods that might provide you a little relief on your grocery bill. If you’re looking to eat out, there are also a handful of chain restaurant apps that offer free products if you’re willing to play their game—and here are the places where you can still score a free kids’ meal.

Travel expenses. If you want to get out of town this summer but have to slash your travel budget due to inflation, you have a few options. First, you can check out any of these alternatives that are cheaper than Airbnb. Next, you can fly on an airline that won’t charge you to bring a carry-on bag. Or you can opt for a day trip instead, seeing the best of what your state has to offer.

Phone bill. There is probably no real way to live without your phone, but you can make your phone bill cheaper. Simple steps such as enrolling in autopay, springing for unlimited data, or opting for a family plan can bring this fixed cost down.

Streaming services bill. If you’re looking to cut back on how much you spend on streaming subscriptions, you might be eligible for a free subscription with services you’re already paying for. Second, if there’s a college student in your family, you can qualify for some great discounts.

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