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?
The personal inflation index is useful only to check ones expenses. It cannot be compared to equity returns. This depends on life events like birth/death/illness.
Try calculating retirement corpus with double digit personal inflation index! Sure shot way to get depressed.
I know this a lame excuse, however, I have been in such a “fire fighting” mode that never have been able to do expense tracking. Its high time now for me to start. Thanks for the post.
How do you plan to do that? And would you be tracking your expenses in detail or at a higher-level?
Planning to start with a high level tracking. Any suggestions on how to begin ?
I used to have the following categories:
1. Salaries for Domestic Help
2. Utility Bill Payments (included cell phone bills)
4. Personal Expenses (clothes, eating out, entertainment, etc.)
Fuel has always been my weak point. I burn plenty of it each month.