59

Why? Because the two are unrelated. "Inflation rate" is calculated by measuring changes in the consumer price index (CPI). Your personal consumption may not match the CPI and the inflation you experience is likely quite different than what the CPI indicates. A great example of this is "rents". If rents increase, but you own your own home, does that ...


41

Many news outlets ... are reporting that the current US stock sell-off is due to a stronger-than-expected jobs report in January... Had the market done well in the last few days those same people would have claimed it was due to the stronger than expected jobs report, and in fact oftentimes a strong jobs report does lead to a bump in the market. Furhtermore,...


36

As I argued in the comment to your question, your assumption is flawed. Here are some facts that counter your assumption (link to resource): Fact #1: Gold went from $105 in 1976 to $850 in January, 1980. Consumer prices increased by about 28%. Verify this here. Fact #2: Gold went from $850 in 1980 to $256 in 2001. Consumer prices more than doubled. ...


33

Inflation as defined in the general, has many impacts at a personal level. For example, you say that the reduction in the price of oil has no impact on you. That's absolutely not true, unless you're a hermit living off of the land. Every box or can or jar of food you buy off the shelf of the grocery store has the price of oil baked into it, because it had ...


33

Let's say there's a product worth $10 in July and the inflation rate in August is 10%. Will it then cost $11 in August? Yes. That's basically what inflation means. However. The "monthly" inflation numbers you typically see are generally a year over year inflation rate on that month. Meaning August 2017 inflation is 10% that means inflation was 10% since ...


24

Your comment about quality of living is the answer to your own question. In general, it's best to live in as small a house as one can be comfortable. You offer no other real details beyond $1,000/mo disposable income. Is that after depositing 15% to your retirement accounts, and having a fully funded emergency fund? Is it truly extra, or does it get ...


24

You keep money in a savings account so that you know you can access it at any point, and that it will always be there. It is diversification of risk. If you have the money in equities instead, you can access it relatively quickly in this day and age, but it may not be there when you need it. The common example is losing your job during a recession. If ...


21

First, from The Inflation Calculator - What cost $24,000 in 1971 would cost $141,898.11 in 2015. But. In 1970, mortgage rates were 8.5% vs 3.5% today. The payment on $24K (let me just do the math on 100% of price) was $185, which 'inflates' to $1141, but $180K at 3.5% is just $808. This is my simple way of saying that of all the items we buy, nearly ...


20

To answer your specific question about income, the answer is: about $20,000 (or a little less) in yearly income put you in the top 10% of income earners in the United States in 1970. This information is provided by this US Census Document (PDF page 13, labeled as page 11, table 1, document entitled "Household Money Income in 1975 and Selected Social and ...


17

The problem I have with gold is that it's only worth what someone will pay you for it. To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, ...


17

First, I advise against attributing stock market movements to particular pieces of news. Many cable shows depend on your interest in this question, but unless the news is nuclear war, its long-term effect is generally exaggerated on the day that it takes place. And the jobs report really wasn't so out-of-line, and other similar reports over the last several ...


15

Inflation is basically this: Over time, prices go up! I will now address the 3 points you have listed. Suppose over a period of 10 years, prices have doubled. Now suppose 10 years ago I earned $100 and bought a nice pair of shoes. Now today because prices have doubled I would have to earn $200 in order to afford the same pair of shoes. Thus if I want ...


15

Other things to consider: Bigger house generally leads to higher costs besides the purchase price. Utilities will be higher, general repairs will be higher, Taxes (I assume you figured them in, but still worth mentioning) will also be higher. Does the commute change between the properties ? Cost/time increase in commute (or ideally decrease) can ...


14

GLD, IAU, and SGOL are three different ETF's that you can invest in if you want to invest in gold without physically owning gold. Purchasing an ETF is just like purchasing a stock, so you're fine on that front. Another alternative is to buy shares of companies that mine gold. An example of a single company is Randgold Resources (GOLD), and an ETF of mining ...


14

No asset is perfect or completely immune to losing value in times of crisis. With any investment your generally trading one type of risk for another. Gold is often viewed as a safe haven asset as it has preserved its value in real terms through hundreds of years of history, but this leads to its market price often becoming overly speculative at times when ...


14

As pointe out by @quid, inflation figures are almost always quoted as a comparison of prices last month, and prices a year ago last month. So 10% inflation in August means that things cost 10% more than they did in August a year ago. This can lead to some perverse conclusions. Consider an imaginary economy where prices stay constant over years. ...


13

No, it isn't generally believed that inflation is caused by individual banks printing money. Governments manage money supply through Central Banks (which may, or may not, be independent of the state). There are a number of theories about money supply and inflation (from Monetarist, to Keynesian, and so on). The Quantity Theory of Inflation says that long-...


12

Take the equation 1 + r_{annual} = (1 + r_{monthly})^12 Notice, the right hand side is just compounding the rate 12 times. We can rearrange the equation to solve for the monthly rate: r_{monthly} = (1 + r_{annual})^(1/12) - 1 Substituting in r_{annual} = .12, we have r_{monthly} = 0.00949. So, for an annual rate of 12%, that corresponds to a monthly ...


12

Since GLD is priced as 1/10 oz of gold, I'd call it the preferred way to buy if that's your desire. I believe gold is entering classic bubble territory. Caveat emptor. A comment brought me back to this question. My answer still applies, the ETF the best way to buy gold at the lowest transaction cost. The day I posted and expressed my 'bubble' concern, gold ...


12

Ye, you're wrong. A blanked statement that "gold is inflation proof" doesn't stack up historically - one can pick various pairs of points in time to show gold rising as prices rise; or gold falling as prices rise. And periods of deflation are, happily, sufficiently rare to be able to draw any meaningful conclusions either way. As Willem Buiter explained in ...


12

Inflation is good for the economy primarily because it is an incentive to invest. If inflation is occurring, then keeping your holdings in cash is a net loser; 5% inflation means that in a year, your $100 is now worth $95.24 (1/1.05), so unless you're getting really good interest, that's a bad thing. On the other hand, if you invested that $100 in a ...


11

You goal should be in rupees, as you are earning in rupees and spending in rupees. Any other currency is of no value / meaning. More than being worried about the USD/INR rate, you should be worried about inflation and savings rate. This will change the amount that you need to save for your retirement. The USD/INR rate would anyways get reflected into some ...


11

Growth phase When you're estimating how much you'll have saved at retirement, subtract the average rate of inflation from your estimate of how much your savings will grow each year. For example, if you expect your retirement account to grow at 8% a year, and you expect inflation to be 3% each year, use 5% as the estimated growth rate instead of 8%. ...


10

Your house doesn't need to multiply in order to earn a return. Your house can provide shelter. That is not money, but is an economic good and can also save you money (if you would otherwise pay rent). This is the primary form of return on the investment for many houses. It is similar for other large capital investments - like industrial robots, washing ...


10

In short, if your expenses rise with inflation but your income does not, your expenses will eventually exceed your income. As the article on perpetuities says, a perpetuity is an annuity that pays forever. An annuity is a financial arrangement whereby you are paid a fixed sum every so often for a period of time. Hence, a perpetuity is an arrangement ...


10

The rates can't just be subtracted. You have to discount each future payment for inflation to find the total inflation-adjusted cost. First though, the calculator you are using is assuming the input rate is a nominal rate, compounded monthly, not an effective rate. I'll proceed with nominal annual rates. So, using the loan formula to arrive at the figure ...


10

Individual product prices do not necessarily rise at inflation rates. What inflation means is that the purchasing power of one unit of currency decreases by x% in a year, which is typically measured by looking at a broad spectrum of products in an economy and extrapolating to "all products". So for all products across an economy, the aggregate price of all ...


10

Inflation is a macro pressure. It is not experienced at a micro level on a 1 to 1 basis. In a given year a pay raise less than the stated CPI rate, for some people the change will either be a real pay decrease, or make no difference, or be a real pay increase Over a long time if that trend continues, spread over a large number of people, on average, it ...


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