How to calculate your Personal Inflation Rate
People everywhere are affected by what is now termed “the global cost of living crisis.” Prices of goods and services are rising at a faster pace than people’s earnings can keep up with, hence the cost of living crisis we are in.
The reasons for the global crisis are simply explained, the coronavirus pandemic of early 2020 disrupted supply chains when it forced factories around the world to shut down, the supply chains have not fully recovered since. Then in 2022, Russia invaded Ukraine, triggering a disruption in the global energy market with Western countries sanctioning Russia, and Moscow in return cutting of energy supply to Europe.
On top of these global causes, individual countries also have additional causes that are exacerbating the crisis within their borders. Nigeria’s crisis, for example, is exacerbated by insecurity and poor infrastructure that has led to widespread flooding across the country.
What is Personal Inflation Rate?
It’s no news that the world is experiencing inflation – and Nigeria & Ghana are feeling it more intensely. But do you know about your personal inflation rate? Yes, you know your country’s inflation rate, but do you know your own? What’s the disparity between your spending last year and this year?
Personal Inflation Rate shows you how a country’s inflation rate affects a person’s spending habits. Knowing your personal inflation rate helps you to understand how your country’s inflation has affected you, your pocket and your lifestyle.
Here’s how to calculate yours:
- Step 1: Calculate how much you spent in September this year (2022) and calculate how much you spent in September last year (2021).
- Step 2: Find the amount difference between both months’ spending. i.e. the difference between how much you spent in September 2022 and how much you spent in September 2021.
- Step 3: Divide the difference by September 2021’s amount, then multiply by 100.
- Step 4: The answer is your personal inflation rate.
Let’s take a realistic example:
Matthew’s expenses for September 2021 is 150,000 Naira (this includes feeding, transportation, data, black tax and other bills). In September 2022, Matthew spent 250,000 Naira.
Personal Inflation Rate is = (250,000 – 150,000)/150,000 x 100
So, while Nigeria’s inflation rate is 20.77%, Matthew’s personal inflation rate is 66.67%. This means that the increase in goods and services has deeply affected Matthew’s pocket and he’s spending more on the same goods and services from the previous year.
How to protect your finances against inflation
With prices of goods and services rising almost in real-time, there are a few steps that can be taken to mitigate the effect of inflation.
- Monitor and Manage your expenses.
- Get an additional source of income to maintain this new increase in expenses.
An additional source of income can be selling your skills, investing in the stock market, or even earning returns on your locked money.