Other countries will have different % changes, and many are subsidized by taxes or high fees for other groups. For example, international students often pay significantly higher fees than locals. Despite the funding supports, most aspects leading to high inflation can be found everywhere. The historical comparison is even worse, when we consider the lack of value gained, or lost, with rising costs. By adapting to the worst of inflation, we can focus on enjoying the benefits of the deflating categories.
Hospital Services >+200%
While many costs in healthcare are inflated by medical errors and conflicts of interest, there are legitimate drivers as well. The global population is aging, and our health ultimately worsens with age. Poor global policy decisions have led to the rise of several pathogens resistant to treatment. Hospitals are the worst hit by this, both in the difficulty treating people and maintaining sanitary environments.
In this classic TED talk, Dan Pink refers to autonomy, mastery, and purpose (AMP) as key factors to motivation. While some will jump to motivation in the sense of getting something, I find it as useful in the sense of motivation to keep going, goal or not. We should find energy from both our current situation and unrealized potential.
Tracking and visualizing AMP
As with anything we care about, it helps to understand our current state and possible futures. As an example, I created a table with some factors that contribute to my AMP. I have given each a score, 4 at best and 1 at worst.
Inflation aside, money earned in early years is worth more than in later years, due to growth potential as an investment. Put another way, a $10 hourly wage is worth more when you’re 18, than it is when you’re 40. Buying power, at the time, may be low, but it can become significant after years of compounding as an investment. Assuming you can return a modest 5%, annually, $10 becomes $70 dollars in 40 years:
While some of us live in close ridings, where only a handful of votes can determine the outcome, most of us have less impact on elections. Voting is still important, and impactful. The power you give to others, through spending, is often greater.
What matters more?
1 vote for the environment; or constantly burning fossil fuels for driving and heating, while importing from countries with poor environmental protections?
1 vote for a higher minimum wage, or buying from companies paying unlivable wages, or outsourcing to cheaper regions?
1 vote for promoting human rights, or buying from countries that actively suppress the rights of their citizens?
I didn’t name specific parties, as it is a subjective judgement to say which candidate or party best addresses each issue. Regardless, the companies we give money will influence government in more obvious directions, and will also directly impact the issues we value.
Actions prove our beliefs, and the more significant actions offer greater proof. If the greatest action we take is a vote every handful of years, how much do we really care?
Lending Loop is a Canadian peer to business lending platform, which I enjoy for several reasons:
Businesses use loans to support their development, whereas personal loans often have some measure of excess/luxury spending. I consider the risk of default less with the former, as a consequence. So far, this seems to be accurate.
As I am repaid on a per loan basis, I can have a steady stream of funds available to either re-lend or withdraw for other purposes.
The rates are competitive, for whatever risk level I am comfortable with:
When I worked in retail, I witnessed no shortage of people buying luxuries on credit. Not using a credit card merely for rewards points or other exclusive perks, but because they didn’t have enough money of their own. They had to use the credit limit available or they couldn’t buy. Worse, some had to get extra cards, because they already spent the money available in their primary cards. This is only ~1/10th as bad as getting payday loans, or 3 times as bad as a line of credit. Even the best of the three is still bad.
You are sacrificing greater future affordability than you gain.
Most purchases lose their effect over time. Some rapidly, drugs*; others gradually, a new smartphone. Clever excuse artists may claim they only use their credit for bigger, more functional purchases, like a used car or a bike. This is deceptive compartmentalization. Using up all of your non-credit spending is what causes you to need credit for the other purchases. This includes unpredicted emergency spending. You better be a legitimate psychic if you can only afford the spending you expect.
Buying anything on credit means all of your spending is on credit.
While most discussions fixate on using the 4% rule to completely retire, the concept is equally useful for those looking to reduce their work schedules. In the diagram above, we can see how many days* we could safely eliminate from our work schedule. To get back a 2 month summer break, you would need a net worth of approximately $125,000, if you kept an annual spending rate of $30,000. Not only does this sound reasonable, but it would also make most work situations bearable, some might even become enjoyable.
As the 4% rule assumes that you are only drawing down from your accumulated net worth, a partial reduction is much safer:
Since income is the active number in our lives, “I make 2000 biweekly,” it too often becomes the main focus for spending, “so I must be able to spend 2000 on average.” Some people get lucky, and the money keeps raining until they retire on the company +/- government pension, but most of us have droughts from time to time. There is another number that is similarly easy to track, one that forces a longer term view: Net worth.
Plenty of FIRE (Financial Independence, Retire Early) people are working their way towards some variety of saving to the point that annual spending is under 4% of their net worth. Even if you haven’t bought into the target, looking at your spending as a percentage of net worth is a profound shift. Being able to see continuous progress from income or spending improvements, or maintaining the good balance you already have, is ridiculously motivating. Since numbers alone are boring for most of us, I built a chart to show the spectrum of spending and net worth:
You can see some of the usual FI references, but I also threw in a couple new ones. Spending Rate defined as percent of net worth spent, annually. The list is formatted in an if/else-if style, but sorted in reverse. “Best” for last.
Till Debt do us Part (Negative Net Worth): The name of one of my favorite shows in high school. Most of the episodes featured people well below the bottom of this chart.
Near Debt Experience (Spending Rate >= 50%): If your life isn’t flashing before your eyes, it should be. Then you could review where you spent your money.
Sabbaticapable (Spending Rate >= 30%): You could afford to take a sabbatical. Barely. Probably.
FI Curious (Spending Rate >= 10%): You’re more independent than most, but aren’t FI enough to enjoy many of the benefits.
FUFI (Spending Rate >= 4.5%): Often referred to as FU money, this is where you have enough to feel confident leaving a job you hate, but will still need to work.
Pretty FI (For a…) (Spending Rate >= 4%) : Yes, an Offspring reference. Enough that a lucky, or adaptive, person wouldn’t need to worry about working for money.
Normal FI (Spending Rate >= 2.5%): You’re FI enough to be FIRE.
Turbo FI (Spending Rate >= 0.8%): Now you can financially survive many of the more extreme scenarios.
Super FI (Spending Rate >= 0.4%): You could probably spend your time fighting crime or something else worthy of a movie.
Ludicrous FI (Spending Rate < 0.4%): You’ve probably gone to plaid by now…
3 Paths Through the Spectrum
With introductions out of the way, we can now visualize several paths commonly attempted. I have marked each with white lanes that people might aim to stay within, using a certain strategy.
How does your spending compare to the alternatives? Rather than starting from abstract costs for any category, look at the actual options available. Every city is unique, so you may have different examples, but the cost differences should be similar. I have kept the example to 4 broad, but representative, groupings: