Cost of Living Increase | Thriving Without One

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As Bob at ChristianPF reported, this will be the first year since 1975 since the Social Security Administration will not be adding on a cost of living increase.  In addition, there are numerous companies who are not offering cost of living increases.  This really is not much of a shock considering the events of the last 18 months.  One sign that the economy is recovering is that people are now focusing on getting more out of their jobs than just keeping their jobs.  All is alive and well.

How Thrive Without A Cost of Living Salary Adjustment

  1. Use inflation adjustments for … inflation.

    Far too many people take the extra pay each year and spend it on a vacation.  If it is for inflation, find your budget items that will need a price adjustment and use the money only for that category.

  2. Cut your lifestyle.

    For at least a few years we ought to be able to battle inflation with lifestyle adjustments.  If the process continues over several years, you may need to look outside to deal with inflation.  (See discussion below.)

  3. Get an extra job.

    If the increased cost of goods is burdensome, go find extra work.  Typically you only need to earn 3 % of your income so you might just pick up an extra job for a month or so.

  4. Deserve a raise.

    Instead of waiting for your obligatory cost of living increase each year, increase your productivity and contribution to your company and earn a raise.

Is Inflation a Belief or Experience?

This discussion is timely because it highlights one of the things I enjoyed from reading Your Money or Your Life (this book is our book of the month).  Today I want to explore some concepts in Chapter 9 titled Now That You’ve Got it, What are you Going to Do With It?

This chapter addresses the issue of managing your savings by dispelling people’s biggest fear: will I have enough tomorrow? The author speaks of an “irrational fear” of inflation.

The Concept of Inflation according to Dominguez and Robin:

What is the consumer price index (CPI)? The CPI records the changes of prices of a fixed list of products and services from one year compared to the next.  In the book, there are some compelling charts that show how drastically certain price items have actually dropped over the years. This includes items such as food and clothing.

It [consumer price index] cannot account for the fact that yesterday’s top-of-the-line model is bested in all ways by today’s “economy model”. (300)

The CPI does not account for changing buying habits. (300)

Essentially, the authors propose that there has been a greater change in the standard of living, not the actual cost of living. If we as people were simply satisfied with yesterday’s products we could live for even less in today’s world.  Consider what you might pay for a standard line phone versus an iPhone.  Compare a portable CD player to an iPod.  The pricing has not increased on those items.  In fact, the price (and availability) has gone done.  What has increased is our desire for newer and more expensive technology.

Might it be that at least part of our experience of “inflation” is due to unconscious and automatic habits as well as to our chosen lifestyle?

While all of us can point to items that have increased – gasoline and health insurance costs, are there not equally a number of items that have decreased in price? Perhaps we focus so much on what has gone up that we forget that simultaneously other prices are going down.  For those items where the price has actually increased, a life style adjustment downward (GASP) could also minimize the impact of inflation.

Here are the summary points offered by Domiguez and Robin:

  • While “inflation” may be a valid macroeconomic concept, this does not mean that it automatically rules your life.
  • Your choices, attitudes, beliefs, habits, tastes, fears and desires have the ultimate effect on your bottom line.
  • Consciousness is defined as the faculty of knowing what affects your mind or what goes on in your mind.
  • No investment product or program is a guaranteed hedge against inflation.  Consciousness is. (pg. 305)

Cost of Living Increase | My Reaction

While I think the book does highlight a valid perspective on inflation, it simultaneously significantly underestimates the potentially devastating impact inflation can have on individuals.  Unfortunately, it is just as true that many people are not prepared to downsize.  We have a (false?) belief that we have a justified right to an increase of possessions as we pass through our lives.

There are some significant products that cannot be sidestepped by a decrease in lifestyle, at least without it catching up in a significant way. Personally, I have been impacted by some significant increases in our international health insurance over the last three years.  The cost has more than doubled which means I am now paying over $3,000 more this year than I was in 2006.  That increase would be terribly difficult to assume if my income did not increase in kind with the health insurance premiums.

Nevertheless, I have been reminded of many ways that life gets cheaper as I get older. As I learn new skills and (hopefully) make wise choices there are less ‘school of life’ tuition payments as well as more income earning opportunities.

Here are some social security strategies for married couples.

Photo by Iqra Newspaper.

How much inflation can be handled by lifestyle change?  When does a salary increase need to kick in? Any thoughts on the content of chapter nine in this book?

Comments

  1. Cheyenne says

    This did not help me as much but i got alot of info but not as much as i thought i woukd get tankz doe

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