Why it's important to track your PERSONAL inflation rate, and how to do it
Personal finance guru Warren Ingram shares key money tips on The Money Show.
Couple working on finances, household budget. Pexels/Ron Lach
Motheo Khoaripe (in for Stephen Grootes), is joined by Warren Ingram, director of Galileo Capital.
The latest numbers show that annual consumer inflation actually dropped in March, to just 2.7%.
However, the average consumer often feels that the official statistics don't reflect what they are experiencing in terms of their own income and real cost of living.
Personal finance expert Warren Ingram believes that you need to figure out your own, personal inflation rate to best manage your money.
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While the CPI is based on an 'average' basket of goods,he points out, every household spends differently.
"If you spend more on items that have risen sharply in price (like eating out, or healthcare), your personal inflation rate will be higher than the official figure. Conversely, if you spend less on those categories, your rate could be lower."
Warren Ingram, Director - Galileo Capital
Almost all retirement planning is based on understanding your current cost of living and then projecting how this is going to increase over your lifetime, Ingram says.
"If you have a good idea of your cost of living and how it is changing every year, there is a better opportunity for you to plan correctly."
Warren Ingram, Director - Galileo Capital
You can also make better financial decisions more quickly, he says - like adjusting your expenses, negotiating salary increases or changing your long-term plans.
"If your personal inflation rate is high, it means you need to invest in more growth assets that have a better chance of matching or beating inflation. That means more invested in shares, property companies and global investments and less in cash and guaranteed products."
Warren Ingram, Director - Galileo Capital
How to track your personal inflation rate:
- Measure your expenses over a typical three month period.
- Compare that to the same three-month period from a year ago.
- Do this every year to see how your cost of living is changing.
- If you really don't want to do the work, you can monitor how the cost of medical care is rising every year to benchmark how much your cost of living is changing. (Probably close to 9% per year, which is much higher than the average CPI of 2.7%!)
Scroll up to the audio player to listen to Ingram's detailed advice