Many Australians are used to keeping up-to-date with all the financial news, even those regarding inflation because, this way, they can have a better understanding of this field and also make smart choices. But are you familiar with the term of personal inflation rate?
If you want to improve your lifestyle and savings, you need to pay attention to this concept. But what does it mean? To understand this, we will think about the price inflation. To be short, when the prices go up, we can talk about inflation, and when they go down, we talk about deflation. This concept is measured by CPI (Consumer Price Index). When calculating CPI, the government takes into consideration essential factors, such as the value of the items, as well as the energy consumed for their production.
How to Calculate Personal Inflation Rate?
When you want to calculate your personal inflation rate, you need to take the CPI concept and apply it to your expenses. CPI is obtained by dividing the price of goods and services in a particular year by their previous price. The factors which influence the inflation sometimes suffer dramatic changes, such as the price of energy. For example, when the demand exceeds the current supply of certain goods, its production may lead to a quick increase in the price of energy, and then to higher inflation.
The personal inflation rate is the result of the cost of all your personal expenses during the last year divided by the costs of all your expenses in the year prior to it. The best way to calculate it is to keep track of your monthly expenses.
What should you consider when calculating how much you spend? The answer can be personalised from one person to another, but it usually includes mortgage, propriety tax, auto loan, insurances (life, health, home, and car), cell phone, cable, Internet bill, household gas, electricity, auto fuel, water, groceries, and entertainment.
The Benefits of Monitoring Your Personal Inflation Rate
If you think about the purpose of monitoring your personal inflation, you should know that this will help you to lower its rate. In other words, keeping track of your expenses and comparing them with your previous ones will contribute to limiting your pointless expenses.
By calculating this rate, you can quickly find out what are the trends of your personal inflation, which means that you can anticipate the value of the future costs. Knowing what to expect for the next year helps you manage your money better. You can even balance the expenses of the things you cannot control, such as car or home loan, and those you can take care of, such as the entertainment costs. Improve your life and make it less stressful by calculating your personal inflation rate and keeping it under control!