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Am I Adjusting my Financial Independence Number for Inflation?

For years I have had a target financial independence number.  But now inflation is 6.2%, am I revising that number upward?  Are you adjusting your financial independence number for inflation?

Origin of Our Financial Independence Number

When I started this site 5 years ago I set a target in my mind for what I wanted my net worth to be at retirement.  That number was well thought out, with an eye towards my current spending as well as future planned outlays.  I wouldn’t say it was perfect since at the time I was planning to retire at 55, a period well past when I would hit that number.  But it was a good guard rail.

Low Inflation meant no Adjusting My Financial Independence Number

And that is where that number sat year in and year out.  Sure, inflation existed each year, at around 2 % each year according to the CPI.  But let’s be honest, over 5 years 2% inflation doesn’t amount to much.   It would be about 10.5%.   And that assumes my expenses changed at the same rate as the CPI, which they have not.

My Inflation Versus Aggregate Inflation

Inflation is measured for the country in aggregate using CPI, but each person experiences inflation differently.  I have fixed housing costs, a short work commute, am not into fashion, travel mostly using credit card hacking, and keep my cars for decades.  As such I barely notice inflation most years.  My inflation rate is no doubt well below CPI in a typical year which is why adjustments to my financial independence number for inflation were not necessary.

If I were an individual with a long commute, renting, and other factors my costs would probably have increased 10% over that period, and I would have needed to increase my target financial independence number for inflation.     The only reason to change my number was if my expenses actually changed.  They did not over that 4 years, so the number remained constant.   If they had behaved differently, I had planned to adjust my target at that time, rather then commit the fool’s errand of predicting future inflation.  But what about now, with inflation around 7%?

My Current Inflation Experience

Well, I have been open that my expenses have been way down since Covid started.  In fact, I wrote this piece about difficulty budgeting due to Covid expenditure changes. Many people I interact with have seen their costs of living increase dramatically as things have opened back up.  But to be honest, I am still not one of those people.’

Variable Travel Trailer Expense Reductions

Why you might ask?  Well let’s see.  All my travel this year has been of the travel trailer variety. The purchase of said trailer was done last year with some excess cash. I am not amortizing the trailer over time nor am I really considering its purchase in my yearly target cost outlays.  It is in the lump long-term headroom I gave myself when I originally set my target financial independence number for expenses plus overhead like future vehicles and college expenses.  

While I would be stupid to present the trailer as a cost savings move, i.e. the cost of the trailer amortized via trip is by no means a discount on hotel rooms, having said trailer does mean my variable yearly expenses for travel have declined.  This is especially true when I note I am still travel hacking the same amounts I did in prior years.  I am just driving to campsites instead of flying to a hotel in Europe.  You can easily see how that net reduces yearly expenses.

Other Expense Reductions

But that is not the only drop in expenses for us.  Our state made the decision that all children in our school district get free school lunches.  This was never the case before the pandemic.  So, while food bills have risen for many due to inflation, ours is down from pre-Covid.

We also have reduced the number of sports team memberships for our kids, delayed some home improvements we normally would have executed, and a bunch of other small changes.    Oh and of course we paid off our mortgage 6 months before Covid

What that all means is our expenses are about 2/3 of what they were before Covid even after accounting for our mortgage.  IE. Our expenses have no relation to country wide inflation currently.

 2019 As a Baseline for Expenses

To date I’ve basically continued to measure everything as 2019 numbers and targets.  This is under the assumption that things like international travel, sports team memberships, home improvement projects, and paying for school lunches will all make a return at sometime in the future.  That all is well and good when we are just talking about setting a success metric like saving money.  But I wouldn’t recommend doing something like retiring on such nebulous data.

Am I Adjusting Our Financial Independence Number for Inflation?

So, am I adjusting my financial independence number up considering the current inflation?  No, I have decided to punt.  I am 3 years away from hitting my previously set retirement number.  I suspect my expenses will stabilize somewhere in that 3 years.  So, I have decided to continue to monitor my expenses over those 3 years.  If/when they go up, I can adjust my target rate up then.  Could that lead to 1 more year syndrome?  Maybe, but it’s worth it to make an educated decision on whether to pull the plug at the appropriate time.

Have you seen an increase in costs this year?  Have you increased your financial independence number for inflation?


  1. Financial Samurai
    Financial Samurai November 22, 2021

    Expenses down, but then up due to preschool tuition. But investments way up.

    My FI number really changed with kids. But has stabilized now that we’re done.

    The one more year syndrome is hard to overcome! How old are u now?


    • FullTimeFinance
      FullTimeFinance November 22, 2021

      I turned 40 this year. So still quite early for any potential retiree.

  2. steveark
    steveark November 22, 2021

    Most people do not adjust for inflation but generally can get away with it because incomes and savings rates tend to go up on their own even faster than inflation for the kind of disciplined money people who read your posts. And in your case your time horizon is also very short. For a old boomer like me I’ve seen 400% inflation over my working career. The $18K salary I started with was equivalent to nearly a $70K starting salary today. And a million dollars now is barely worth a quarter million back then. But since my savings rate and salary kept going up I ended up with a much bigger portfolio than I would have thought possible way back then.

  3. Impersonal Finances
    Impersonal Finances November 28, 2021

    So close to the finish line, it would almost be demoralizing to move the goal posts now. We’ll see how this plays out, but I would guess (nobody can do much more than that) that inflation is high for a year or two as we adjust from the historic government spending during the pandemic before settling back to a lower level. Hopefully just in time for that retirement!

  4. Dividend Power
    Dividend Power December 1, 2021

    As long as growth of your passive income streams keep up with inflation your FI number should be OK.

  5. Mr. 39 Months
    Mr. 39 Months December 5, 2021

    I’m not adjusting at this time, as I have a lot of my assets in stocks, which tend to do OK with inflation (not counting the 1970s Stagflation period). Still, like everyone else, I”m monitoring it. I’m very concerned about inflation, as I did live through the 1970s, and it was a bad time.

    • FullTimeFinance
      FullTimeFinance December 19, 2021

      It’s definitely a wait and see situation.

  6. Gentleman's Family Finances
    Gentleman's Family Finances December 22, 2021

    I’ve always taken inflation as being 0.25% percent per month or around 3% a year.
    This is the number that sits in my Family Finances spreadsheet alongside a 0.5% per month growth rate for investments.
    Both of these numbers have proven to be wrong over the last any number of years but more importantly they are wrong in the right way. Inflation over the last 10 years maybe has been below 3% – quite a cumulative compound growth dodge.
    So, is a year or two of 6% is nothing to worry about.
    What is more serious is that this inflation is a symptom and not a cause of whatever is coming down the line from the after effects of covid.
    That is what you should worry about, not if your spending will increase from 4% to 4.24% if your net worth next year.
    Thanks for the good post by the way.

    • FullTimeFinance
      FullTimeFinance December 28, 2021

      Definitely hard to predict where we go from here. My predictions this time last year were definitely off. But then again I could just be early in those predictions.. Time will tell.

  7. Mr Fate
    Mr Fate March 22, 2022

    Always difficult to accurately predict the future and I think your decision is solid. As you point out the key is understanding what that 7% really means to you individually. For me, it far lower and things such as food, gas, etc. is barely noticeable. In any event, the good news is you still have the option to change your numbers or retirement date depending on how things play out.

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