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(Note: Stay tuned for the giveaway winners announcement at the end of the article)
Ahh inflation, the most terrifying arch-nemesis of early retirees.
You’re no longer working, relying on your portfolio (which is dropping during a bear market), and then you get hit with a whopping 9% increase in spending? Yikes!
Is it time dust off the ol’ resume and go crawling back to your boss to beg for your job back? What happens to a FIRE person’s expenses when inflation runs hot? Do you get burned?
The interesting thing is, this whole time with inflation running at 9%+ and still rising, I’ve been looking at my spreadsheets, and our expenses STILL haven’t changed much.
Let’s have a look-see, shall we?
Since the top 3 categories in any budget are housing, food, and transportation, getting a handle on them helps you beat inflation. No need to feel guilty about splurging on lattes or avocado toast (even if it is stupidly overpriced at $10 when you can make it yourself for $1).
Let’s start with transportation. For us, transportation costs were $152 in July of 2021. This year, it’s at $158.16 in July, a minuscule 4% increase compared to the 60% increase in gas prices since the same time last year. This is because we take public transportation and since the subway is electric, it’s not affected by gas price increases.
Grocery and alcohol costs actually went down, sitting at $369 in July 2022 compared to $402.86 last year. That’s a drop of 9%. I’ll explain how you can cut down significantly on grocery costs in a bit.
And rent went down from $1700/month in July 2021 to $1500/month in July 2022 because we rode plummeting rental prices all the way down through the pandemic and then locked in before rents increased. That’s a drop of 13%.
Could an early retiree’s personal inflation rate be different from the CPI?
To answer that question, I had to first look at how CPI is measured. What’s in this so-called “basket of goods” used by the Bureau of Labor Statistics?
Well, according to their website, the CPI is broken down into 4 top-level categories:
- All Items Less Food and Energy
- Services Less Energy Services
That last one’s a bit weird, but they then refined into 18 sub-categories within those categories, as seen in this table:
|Expenditure category||12-month percent change, Jun. 2021–Jun. 2022||Largest percent change before June 2022||Month of previous largest percent change|
|All items||9.1%||9.6%||Nov. 1981|
|Food at home||12.2||12.3||Apr. 1979|
|Food away from home||7.7||8.0||Nov. 1981|
|Fuel oils and other fuels||70.4||58.8||Apr. 2022|
|Motor fuel (including gasoline, all types)||60.2||68.2||Mar. 1980|
|Utility (piped) gas service||38.4||45.3||Oct. 2005|
|All items less food and energy||5.9||5.5||Dec. 2021|
|Household furnishings and supplies||10.2||10.6||Apr. 2022|
|New vehicles||11.4||11.1||Nov. 2021|
|Used cars and trucks||7.1||4.0||Aug. 2020|
|Motor vehicle parts and equipment||14.9||14.5||Apr. 2022|
|Medical care commodities||3.2||3.7||Jul. 2017|
|Recreation commodities||4.5||4.7||Mar. 2022|
|Education and communication commodities||-5.7||-4.0||Apr. 2022|
|Services less energy services||5.5||5.5||May-91|
|Medical care services||4.8||4.9||Sep. 2020|
|Transportation services||8.8||10.4||Jun. 2021|
|Recreation services||4.7||4.4||Apr. 2022|
Looking at this in graph view:
We can see that the biggest increase is in the energy category—an increase of 41.2% compared to 12 months ago! We all know who to blame for that, so I won’t get into the details of why.
The next highest increase is in the food category at of 10.4% compared to 12 months ago.
Gas is gas, but I was curious about what’s included in the basket of groceries used to calculate the food category in the CPI.
Here’s what I found:
- Cereals and bakery products
- Meats, poultry, fish, and eggs
- Dairy and related products
- Fruits and vegetables
- Nonalcoholic beverages and beverage materials.
Of the 5 categories that’s used to determine food inflation, only 3 out of 5 applied to me, which explains why my personal food inflation was much lower than the national 9% inflation number.
It also made me acutely aware of how culturally-biased the food index is.
For example, look at this article breakdown of “essentials” done by TheStar to analyze inflation and compare food prices across different major grocery store chains.
More than 50% of the stuff on the list I’ve never bought. In fact, I’m allergic to most of it.
I don’t drink coffee, I have a wheat sensitivity, so I don’t eat bread, pasta, or cereal. I’m not big on potatoes and I don’t drink milk or use butter when I cook. I’m not lactose intolerant but my stomach tends to rebel from drinking it every now and then so it’s safer for me to avoid it.
So as far as basket of goods go, this is a very western diet. So, if the basket of goods don’t match my own basket of goods, does that mean personal inflation can be vastly different from the CPI?
Should we be using a different set of criteria than the average, if our lifestyle choices are vastly different from the norm?
What if you’re financially independent and no longer need to work? Does the CPI apply to you at all?
I’d argue, no.
After all, if you don’t need to go into an office for work every day, you rarely need to drive. Gas prices don’t affect you. This is huge since the biggest increase in CPI is due to gas prices.
If you no longer need to live in a big city where all the jobs are, rising rents and mortgages don’t affect you. You can move to a low-cost location.
From commuting to expensive housing options, to eating out due to lack of time, you are PAYING to work. People are who financially independent are less susceptible to inflation because they have choices which lets them opt out of entire categories (like driving) that bumped up the CPI.
And even if you’re not financially independent yet, you can still beat the CPI by strategically managing your personal inflation rate.
Here Are Some Ways You Can Beat Inflation:
If you can’t stop driving, switch to an electric car, or alternate driving days with biking days or public transportation days. If your city has a good public transportation network, subways and trains are the best. Since they (generally) run on electricity, they’re not affected by spiking gas prices. Plus, it’s better for the environment. Since energy is the number one category driving inflation, if you can strategically reduce the amount of driving you need to do, that makes a huge difference in your personal inflation rate.
Use the “Too Good to Go” app
I discovered this app from my Chautauquan friends, who showed me how much money they were saving while reducing food waste.
Started in Copenhagen, Denmark in 2015, TooGoodToGo helps you find surplus unsold food from restaurants and grocery stores for 1/3 of its original price.
You can filter by the type of food you like, and the handy map feature will find restaurants and grocery stores within walking distance. It also shows you what time to pick up your “goodie bag.” Once you arrive, you simply tell the cashier or restaurant staff, they’ll hand you the produce and ask you to swipe on the app to show you’ve received it.
For example, I got this surplus bag of groceries for just $5.40 USD/$6.99 CAD:
A lot of the items I would’ve bought during my usual grocery store run anyway and just one of the organic salads would’ve cost $5.40 USD.
Here are some meals my friends got that they’ve enjoyed for just $3.87 USD – $4.64 USD/$4.99-5.99 CAD
Given that 108 billion pounds of food are thrown away each year, this app will help you beat inflation and reduce food waste. Win win!
Shop at Chinese Grocery Stores:
Big supermarkets have been found to increase their prices above inflation (as much as 76% in some cases!) in order to maximize profits.
This keeps their shareholders happy but screws over their customers.
So, what should you do in this case? Be a shareholder, not a consumer. By investing in the index, you make sure that those extra profits come back to you in the form of dividends and long-term capital appreciation, benefiting from the store profits.
When it comes to groceries, instead of buying overpriced goods at the major supermarket chains, shop at Chinese grocery stores. It’s the same fruits and vegetables but WAY cheaper.
Here’s a comparison of the prices at a major grocery chain versus a Chinese grocery store. For the exact same item, the price is 30-100% more!
Sweet Peppers: $3.99/lb at the superstore. $1.99 at the Chinese grocery store.
Avocados: $6.49 for 4 at superstore, $4.99 for 5 at the Chinese grocery store
Organic Salad: $4.99 on sale at the superstore. 2 for $2 always at any time in the Chinese grocery store
Green beans: $4.99 for slightly less than 1 lb at superstore. $2.99/lb at Chinese grocery store.
Just remember that some Chinese grocery stores only take cash or debit. No credit cards. It’s more inconvenient but worth it to cut your grocery bill by half.
If you don’t have Chinese grocery stores near you, use the Flipp App to access electronic coupons for price matching at your local grocery store.
Strive for Location Independence
Of course, not everyone can do this, but for those who can, make your current job location independent or switch to a role that lets you work from home. Remember, if you must commute to work, you are PAYING to work. So, your REAL salary is much lower when you factor in the massive spike in gas prices.
The more location independent you are, the less you are affected by inflation.
Invest In Yourself
During times of high inflation, your skills become much more valuable because in a tight job market, you can demand a raise. Know your worth, switch jobs or get more training to make yourself indispensable. When prices are rising by 9%+, make sure your salary is keeping up, otherwise you’re losing money by working for the company.
Buy Second Hand
Second hand items are better for the environment while not being subject to inflation. For example, when we had to get a long-term rental and furnish it during the pandemic, furniture costs had skyrocketed. And not only that, but supply chain issues also made it so that even throwing money at the problem didn’t help. I was trying to buy a new sofa bed for $1000 but had my order cancelled twice from two different online stores the week before delivery. They ran out of inventory and had no idea when they’d be able to get more. Even IKEA ran out of sofa beds!
So, I went to Facebook Marketplace and bought a used sofa-bed that was in good condition and included delivery for only $260.
After I thoroughly cleaned it, it was as good as new. Plus, I don’t have to stress about spilling drinks or messing up a brand-new couch.
Once I started buying second hand, I was able to furnish an entire apartment for $1200 rather than spending that much on just one couch. Considering that on average it costs $3500-$5800 to furnish an apartment, I saved thousands by buying used.
When it comes to furniture, Facebook Marketplace is your friend.
Pay off Your Mortgage Faster
With interest rates spiking, now is the time to pay off debt. Don’t bother borrowing to invest if interest rates are spiking. Your returns in the market will not beat it. Our rule of thumb is invest only if interest rates are < 4%, otherwise pay off your debt.
If you don’t have a fixed mortgage, throw as much money at your debt as possible to avoid being screwed by rising interest rates.
Be Strategic About Rentals
If you’re renting, be strategic about the type of rental you pick and the landlord. We like purpose-built apartment buildings with rent control. We also prefer landlords who are older because they value their time more than money and would rather rent to trustworthy tenants at below market rate rather than high maintenance tenants for more money. They’ve also bought their property a long time ago so they’re not desperate to raise rents. Be a great tenant and your landlord will go out of their way to keep you.
If you’re location independent, renting gives you the flexibility to move. During the pandemic, we moved around in Airbnbs because they were cheaper than long term rentals. Once that advantage went away and prices came back up, we found a long-term rental that is 20% below market rate.
Even though the stock market has been volatile this year and we’re technically in a bear market, with unemployment rates at historical lows, it looks like inflation is starting to peak. You’ll want to stay invested for the inevitable recovery. In times of inflation, the value of cash is being eroded every day, so don’t panic sell and move to cash. During times of inflation, corporations raise prices and pass it to consumers, so you’ll want to stay invested and to take advantage of those sweet sweet corporate profits. Be a shareholder, not a consumer.
While you can’t deny that inflation is happening, the personal rate of inflation varies—especially if you have a unique lifestyle. So, in this case, being a misfit pays.
Inflation does affect FIRE people, but not nearly as much as the CPI would lead you to believe. By not having to drive to work and with all the time in the world to optimize your expenses, you’re ahead of the curve.
Does your personal inflation differ from the CPI? What are your tips for beating inflation?
I am pleased to announce the winners of our book giveaway! Although they were randomly picked, I thought it would be interesting to see their answers for the question “What is the best unnecessary thing you ever spent money on?”
top unnecessary purchase = scuba hoodie…in the summer…cause the ac is running 🙂 wOrtH iT!! 🙂iamblasian
Well, that is a high degree of unnecessary. Hoodie, plus summer, plus blasting the AC. LOL. This comment made me laugh.
The best unnecessary thing I bought was a trip to Macchu Picchu. It was the best thing since that’s where we got engaged and now married.Lynn
Aww, that’s a sweet one, isn’t it? Macchu Picchu is on our bucket list! Can’t wait to go!
Honestly, my wife’s breast augmentation she wanted for her birthday. She is more confident and daring.Chad
This one is also sweet, but for a completely different reason. You got your wife a boob job for her birthday? You, sir, are the hero that America needs right now.
Congrats to all the winners! If you didn’t win, you can purchase Dr. Jordan Grumet’s book right here:
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