The CPI (Consumer Price Index) is the government's measure of inflation. However, many items are not in the index. For example, the annual increase in property taxes which in Loudoun County, VA have averaged about 6-7% per year. If property taxes are 30% of your mortgage and your mortgage is 30% of your annual income, then the overall effect on your personal rate of return is about .50% (a 1/2 of 1%) without even calculating any other areas.
Calculation of that one item that is not in the CPI: (30% of 6% = 1.8% and 30% of 1.8% is .54%)
According to the Journal of Financial Planning (November 2008 issue), in 2005, 75% of the price change to light duty trucks and cars came from quality improvements. Many of these quality improvements were mandated by the same government that removes them from the price index. Now, everyone does not buy a car every year but if you are doing good financial planning you are saving to replace that car on an annual basis. Vehicles appreciate at the rate of about 7.5% per year - much higher than the price index.
Keep this in mind and calculate your personal CPI. It is different than what is reported but you knew that already and read my other posts on "Economy-Inflation".
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.