HYDERABAD: If you’ve seen the headline above, we bet you’ve stopped for a moment. We also bet your answer drew a blank. Following the awkward two-second pause, you may have even posed the question back to us: Oh, wait! Is there a ‘my inflation’ rate?
Government statistics tell us that inflation is growing at an average of 3-4 per cent. But is that how much more you are paying annually? In a word, no. In two words, hell no!
Put simply, the official inflation statistic you see and what you pay is akin to Tom Cruise looking like he’s in his 30s, when he isn’t.
That’s because government data on monthly or annual price rise considers a broad basket of goods and services and hence, it’s only an indicative number, which is of little or no relevance for individuals.
“It never makes sense to me. For instance, my annual expenses grew much more than 3-4 per cent,” says a Bengaluru-based individual, who goes by his online pen name Fundamental Investor. He’s been diligently maintaining a daily expenses sheet for the past seven years and it’s this meticulous exercise that helped him not only save and invest wisely, but also retire early at just — hold your breath — 33!
“The idea of daily budgeting wasn’t to curb spending, but to determine future requirements and reflect on how I’ve historically changed,” he explains.
Just like how individuals’ incomes vary, price rise too changes at a different pace. A simple do-it-yourself household budgeting — yes, bean-counting daily expenses including even costs for chai — determines your inflation rate. And also, knowing that this is key to your financial independence. Note here that maintaining accounts for a year or two may help streamline expenses and inculcate financial discipline, but your inflation rate is more reliable when budgeting is done for a longer duration, say 5-10 years.
We often get scared when certified financial planners ask us to aim for `2-3 crore retirement corpus, which, mind you, isn’t even ‘Retire Rich’. The trouble is that the actual requirement may be lower or even higher, because financial planners go with official inflation forecasts, besides of course considering your monthly/quarterly/annual expenses. But in the absence of granular data, such figures may not be accurate. Instead, DIY accounting, which one could start with a simple excel sheet, will prove useful. Just like how Amit Gadre, a certified financial planner, did — including various expense heads like house and vehicle maintenance, groceries and every discretionary spending such as vacations.
“Contrary to what many believe, it’s an easy process. Our budget plan is our personal balance sheet,” he says, adding, “I could delay many instant gratifications, which was the key in attaining my financial independence. Delaying gratification terminology isn’t necessarily sacrificing your current lifestyle, but ignoring many temptations that may easily ruin your possible odds of making a fortune in later part of life.”
So, where should you start? Begin with an excel sheet and if all your payments including for vegetables are digital, the task is all the easier because all transactions are already recorded.
“One critical question that arises in today’s youngsters is, ‘How can I save? With today’s expenses and lifestyle, I’m unable to save’. I have been hearing this throughout. My tip to beginners is, start doing it (budgeting) every month for at least a year. You will be really surprised to see the result,” explains Amit, who too retired in his 30s.
The bottomline is, budgeting is no longer a stigma. It’s a crucial cog in every individual’s financial independence journey. As Fundamental Investor says, the moment you start doing it, it becomes a daily ritual, which you’ll love.