Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.
To me, “inflation” is simple.
If last year, I was spending Rs 25,000 per month on an average and this year, if I am spending Rs 30,000 per month on an average, then my expenses have inflated by 20 percent — and that’s my Personal Inflation Index.
Then, it really doesn’t matter to you one bit what the inflation indices at the national level are. You’d really really stand out if you were consuming the same basket of goods — and in the same proportion — as what goes into determining the national inflation indices. Of what relevance then is an 8% — or whatever percent quoted by [insert your favorite media house here] — national inflation index (WPI, CPI, et al.), when your personal expenses have gone up by 20% over the course of a year? Would you then be happy if your equity investments — the favored panacea for all inflation-related-worries — were earning a mere 15% per annum?
You obviously wouldn’t.
So, the next time you hear/read the word “inflation” stop listening/reading. Instead, focus all your energy on how best you can cut down your expenses so that your personal inflation index is at its minimum.
In my MBA classes, the answer to every other question was “inflation.” I doubt if anyone actually understood that term. No wonder then that this term is over-hyped!
What do you think?
Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.