Monday Night Finance- Volume 59

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Does Inflation Matter If You’re Frugal- GovernmentWorkerFI

If you’ve watched the news this past month, you’ve probably seen some headlines about inflation. Prices are skyrocketing. Over the past year, the consumer price index (CPI) rose by 6.2% over the previous year. As a result, inflation is the highest it has been in over 30 years. What does this mean for consumers? While many news outlets are spelling doom and gloom for consumers, are things really that bad? Longtime CountAbout user “Gov Worker” looked back at several years of his CountAbout data to see how inflation has affected him personally.

Right now, I’m not freaking out about inflation. I have years of granular data of our spending. I feel comfortable that the way the government tracks inflation doesn’t really correlate with how I spend my money.

Gov Worker starts the article by explaining their spending habits. The most unusual fact about their family is that they bike almost everywhere, so spend very little on gasoline and car maintenance. He then goes on to share his CountAbout data over the past three years. Using several statistical tests, he shows that his spending did not increase over the past year. Finally, he discusses how he is thinking about inflation. Gov Worker notes that while the consumer price index grabs headlines, your own inflation rate might be dramatically different. For instance, if you are a vegetarian, it doesn’t matter how fast beef prices rise. If you are worried about inflation and want a reassuring take on how inflation may affect your life, read Gov Worker’s post and then check your CountAbout dashboard.

Bad Market Returns? Ain’t No Problem Here.

Maybe you’ve seen them. Headlines proclaiming that we will have many years of bad market returns ahead of us. They seem to be everywhere (including in ads that run on the bottom of many websites). Does that mean that you should be pulling money out of the stock market and buying cigarettes and blue jeans to barter with when our economy collapses? Darcy, of WeWantGuac, analyzes what “bad market returns” might be in her latest post. As always, Darcy draws upon a rich understanding of history (she predicted nearly all of the economic impacts of the Covid-19 pandemic by examining how the black death changed Europe’s economies).

There are a ton of news sites out there publishing articles warning professionals much smarter than you are predicting zero returns over the next decade… or, worst, negative returns. Who’d want to invest with headlines like “Massive Bank Sees Negative 10-Year Stock Returns” and “Stock Market Crash: Experts Warn“? You’d be running for the hills if you took them at face value.

So what does Darcy divine from her historical analysis? There have only been 4 times in the past hundred years when there were negative returns for 3 consecutive years (or more). All of those events were caused by significant international upheaval like a global war. Notably, neither the 2008 housing crisis or the 2020 pandemic caused multi-year negative returns. Similarly, none of the conflicts since World War II have caused prolonged negative returns. Darcy points to market returns during these serious disruptions as evidence that the governing bodies of the world have learned lessons from the past and that they have a very strong incentive to make market returns positive. As a result, even if we do face prolonged periods of bad market returns as the experts predict, “bad” just means not the historical 10% returns but instead a smaller positive number. Darcy then calculates how long it will take her to reach a million dollars even in poor return environments. She shows that even in ridiculously low return environments (i.e. 1%) she will reach the millionaire status in her 40s because she invested early in her 20s and this money has decades to compound.

My Parents Retired at 42: What I Learned Growing Up in a FIRE Family

FIRE (Financial Independence & Early Retirement) has been the subject of a lot of media attention in the past decade. (Interested in FIRE? CountAbout helps you track your progress towards FIRE) Perhaps you’ve seen the headlines of people retiring in their 30s or 40s. Have you ever wanted to know what they’re doing 5 or 10 years later? In this guest post on Budgets Are Sexy, Mike from Friends on Fire shares a story of what his life was like. What does his life have to do with the FIRE movement? His parents retired early nearly 40 years ago.

If you’ve stumbled upon the concept of FIRE (Financial Independence Retire Early), you wouldn’t be faulted for believing it was a new concept, a product of the Great Recession, or Millennials coming of age. The idea is attractive and inspires so many people. But the truth is that the concept of financial independence or retiring early has been around for a while.

Mike talks in depth about how his life was strongly influenced by his parents’ early retirement. His parents were “always around”, literally. Mike shares that not only did his dad come to his sports games, but also help the school found a new team. One aspect that Mike talks deeply about is his parents’ health. Since they retired so early, they were young and healthy in their retirement and were able to do superhuman feats to make their family situation work. They were also able to travel all around the world with their kids. Mike found that his parents found purpose in their early retired lives and were happy in doing it. If you want to know what early retirement is really like, it’s definitely worth reading Mike’s story.