Accumulators, what's your response to inflation?

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Ron Ronnerson
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Re: Accumulators, what's your response to inflation?

Post by Ron Ronnerson »

OrangeKiwi wrote: Tue Feb 06, 2024 1:06 pm
Ron Ronnerson wrote: Mon Feb 05, 2024 9:18 pm
On a side note, I think a much bigger factor than inflation that has helped us is geo-arbitrage, but not in the way most people tend to think. They pay me $140k to teach elementary school in the Bay Area and I’m expecting a six-figure pension as well. This is considerably more than what teachers make in most other areas. By keeping expenses at bay (which is often possible in VHCOL areas by making certain deliberate consumption choices), we can pocket much of the higher income. In any case, it has worked out fairly well for us so far.
Do you think your course of action would work out as well starting today in your location? I am not familiar with the specifics in the changes in teacher compensation, but I would be very surprised if a younger Ron Ronnerson would be able to accomplish what you did if they were to buy an equivalent to your house at market price today, or any other VHCOL. All the other expenses would pale in comparison to the land/rent cost, so keeping them at bay would be functionally meaningless.
I do think it’s harder for younger people in some respects these days, particularly when it comes to buying a house because both prices and interest rates have gone up so much so fast. However, living in a VHCOL area could still be advantageous for some people. They do need to find a solution to the housing piece that works for them, though.

I’ll provide an example of a friend I have. He’s been teaching for about a decade and has a salary of roughly $125k. He’s married to someone who just recently became a nurse. Her salary is similar to his and they will both be receiving raises in the future. They rent in a nice apartment complex for $2300/month and don’t want to have any children. So, after accounting for their housing expense, they’ve still got $200k to cover their expenses (including taxes).

Now we're at the the part where the geo-arbitrage comes in. Their other expenses aren't all that much higher than in lower cost of living areas. For example, my friend drives a 2005 Honda Accord, goes on inexpensive vacations, doesn't go to fancy restaurants, etc. He has quite a bit left to direct toward savings after paying for rent if he so decides. The lifestyle my friend has chosen may not be for everyone but it does work fine for him.
Ron Ronnerson
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Re: Accumulators, what's your response to inflation?

Post by Ron Ronnerson »

FeralCat wrote: Tue Feb 06, 2024 12:55 pm
Ron Ronnerson wrote: Mon Feb 05, 2024 9:18 pm I’ll provide a data point. I’m a public school teacher in the Bay Area and my wife is a stay-at-home parent; both of us are 49 years old. Five years ago, I earned a salary of $103,200. By 2023, it had increased by 35%, to $139,200. Meanwhile, inflation over this time period has been roughly around 20% according to the U.S. Bureau of Labor Statistics calculator.

We purchased our home in 2010 for $500k. The payment on our home (which is currently valued around $1.2m) is $1900 per month. Our property taxes have increased from $9k in 2010 to $10k now due to Prop 13 in California limiting the increases. The mortgage payment and property taxes are our two biggest expenses and basically sheltered from inflation.

Our life insurance premiums are fixed as well. Our auto insurance and registrations costs have actually gone down slightly as our cars age. A gallon of gas has come down from almost $7 in the summer of 2022 to $4.19 at my last fill up. Our cell phone plans costs exactly the same as they did a few years ago and my union dues haven’t changed either in recent years.

All of the items above, which have either stayed the same or effectively decreased over time, constitute around 42% of our spending (not including income taxes, which were $4k for federal and $1k for California in 2023).

As for the savings rate, we’re at roughly 40% these days and live quite comfortably. Our net worth has increased from $0 to $1.85m over the past 15 years, thanks in part to inflation helping raising my income over time while a significant portion of our expenses don’t follow suit.

On a side note, I think a much bigger factor than inflation that has helped us is geo-arbitrage, but not in the way most people tend to think. They pay me $140k to teach elementary school in the Bay Area and I’m expecting a six-figure pension as well. This is considerably more than what teachers make in most other areas. By keeping expenses at bay (which is often possible in VHCOL areas by making certain deliberate consumption choices), we can pocket much of the higher income. In any case, it has worked out fairly well for us so far.
You're right about the ability to sometimes lower spending in high cost-of-living areas. Thinking about it, my rent is high, but my transportation costs are essentially zero. My employer pays my Metro fare, if I use Metro to get to work. I walk errands and do grocery shopping near home. There are bike lanes and trails for biking to work, etc. I do have a car for emergencies, but it is not expensive to keep. There was a recent question here about whether it is okay to buy a $50K vehicle. Let's just say that I didn't participate in that discussion.
I'm with you as far as transportation costs go. I bought my Toyota Corolla for $17,500 out-the-door about 10 years ago. I am planning to keep it for a good while longer as it only has 115k miles on it and is only middle aged. My wife also drives a Corolla except hers is a little older than mine.
exodusing
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Re: Accumulators, what's your response to inflation?

Post by exodusing »

One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Nottingham
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Re: Accumulators, what's your response to inflation?

Post by Nottingham »

exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Wait till rates go down and housing prices are back up? :mrgreen:
exodusing
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Re: Accumulators, what's your response to inflation?

Post by exodusing »

Nottingham wrote: Wed Feb 07, 2024 9:39 am
exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Wait till rates go down and housing prices are back up? :mrgreen:
Median housing prices are up year-over-year and costs of purchase and ownership are up due to higher mortgage costs.
Last edited by exodusing on Wed Feb 07, 2024 9:50 am, edited 1 time in total.
tashnewbie
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Re: Accumulators, what's your response to inflation?

Post by tashnewbie »

exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Are you saying you think lower mortgage rates would cause housing prices to go down too?

In my local area, it does appear that housing prices are softening some compared to the last couple years, probably due to the higher mortgage rates. I am skeptical that prices would decrease further if mortgage rates come down.

I'm hoping to buy this year and have been sort of watching the market for the past few years. Hindsight is 20:20, and I wish I would've bought in 2019 or 2020, but I don't think I'm going to intentionally continue to sit on the sidelines, hoping prices decrease. I'm planning to buy a house that I can afford, at a price that I think is reasonable. It will likely be more than I could've bought it for in 2020 or 2021 and may well be more than I could get it in 2025, but I can't live my life based on what-ifs.
exodusing
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Re: Accumulators, what's your response to inflation?

Post by exodusing »

tashnewbie wrote: Wed Feb 07, 2024 9:50 am
exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Are you saying you think lower mortgage rates would cause housing prices to go down too?

In my local area, it does appear that housing prices are softening some compared to the last couple years, probably due to the higher mortgage rates. I am skeptical that prices would decrease further if mortgage rates come down.

I'm hoping to buy this year and have been sort of watching the market for the past few years. Hindsight is 20:20, and I wish I would've bought in 2019 or 2020, but I don't think I'm going to intentionally continue to sit on the sidelines, hoping prices decrease. I'm planning to buy a house that I can afford, at a price that I think is reasonable. It will likely be more than I could've bought it for in 2020 or 2021 and may well be more than I could get it in 2025, but I can't live my life based on what-ifs.
I'm saying higher mortgage rates result in higher purchase and carry costs. Prices are also up. Mortgage rates appear to be up due to the Fed raising rates and are likely to come down when the Fed lowers.

Also, since cost of housing is higher due to higher mortgage payments, the shelter component of inflation (which is about one-third of CPI) seems to have increased as a result of the Fed's raising rates to lower inflation,
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bligh
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Re: Accumulators, what's your response to inflation?

Post by bligh »

sailaway wrote: Tue Feb 06, 2024 11:31 am
bligh wrote: Mon Feb 05, 2024 11:54 pm
SavinMaven wrote: Mon Feb 05, 2024 12:01 pm
I'm curious to learn what others are doing. Are you cutting the "wants" budget so that your savings rate remains the same as the cost of "needs" increases? Pursuing a side gig? Planning to work longer before FIRE?
I have been adjusting my nominal FIRE number upwards to keep up with Inflation.

Consequently it is now 20% higher than it was in 2020, which means I must work and save for longer.

Unfortunately the 20% higher withdrawal rate will also result in higher marginal taxes and so result in a larger tax burden during retirement.

It sucks, But you play the hand you're dealt.
Tax brackets are adjusted for inflation. Of course, that is national inflation, not your personal inflation, but it does mitigate this effect.
Thank you for pointing that out! In all honesty for some reason I assumed that tax brackets didn't adjust for inflation (I noticed they changed year to year, but I just assumed it was some government body making that call.. I didn't realize it was recalculated based on inflation) . I had my nominal withdrawal rate going up over time due to inflation and I was worried about the withdrawal amounts I was seeing 15-20 years out and the marginal tax brackets those would put me in. Glad to hear that the tax brackets will have moved up over time to reduce the effects of that.
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Re: Accumulators, what's your response to inflation?

Post by YeahBuddy »

I am earning more than ever so it's not as bad for us. At 42, I feel like the hardest "grind" years are behind me at this point and even inflation isn't hurting us that much. But also, we are shopping better insurance rates, changing insurance companies, doing shopping at warehouses, not buying that new car we may have in the past, going out to eat less, etc.
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unwitting_gulag
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Re: Accumulators, what's your response to inflation?

Post by unwitting_gulag »

For me, the real sting of inflation isn't that goods or services cost more, or that my monthly capacity to save is diminished. Both are true, but they don't dominate. Rather, it's that my portfolio is objectively worth less today, than it was say two years ago, even if in raw numbers the dollar-figure may be higher. Inflation means that the S&P's record high, even with dividends reinvested, isn't really such a record... or if it is, the cumulative increase just barely grazes above zero. If I save more, by one of those spunky frenetic self-help methods of upskilling or whatever, to get a higher-paying job, while keeping my lifestyle in check, and hence, having more to save... OK, fantastic, pat on the back, etc. But how much would additional savings move the proverbial needle... if the needle is spinning backwards, because of inflation?

Now suppose that we receive felicitous news in coming months, that inflation is back down to 2%. This is, I think, entirely possible. But the damage to one's portfolio is already done! The former $X is now only worth $0.92X, or whatever it is. It's going to be up to the market, and far less on me personally, to make good on the difference.
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Re: Accumulators, what's your response to inflation?

Post by yolointopants »

exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Inflation happens. People panic, begin buying things they don't need with money they don't have. Thus borrow against the future to pay the present. As demand increases, producers raise prices. Rents increase.

Causing more inflation.

Meanwhile, interest rates go up, inflation expectations go up, causing people to buy more, causing inflation.

Houses appreciate. Mortgage rates rise. Housing scarcity increases, housing prices go up.

Meanwhile as housing gets more expensive, renting initially appears more appealing. Thus demand for renting. Thus rent goes up. Causing inflation.

Higher interest rates cause long term inflation.

I don't know if this is true. But this is my theory. I was a lit major. Consider the source.
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Re: Accumulators, what's your response to inflation?

Post by watchnerd »

yolointopants wrote: Thu Feb 08, 2024 8:01 pm Higher interest rates cause long term inflation.

I don't know if this is true. But this is my theory. I was a lit major. Consider the source.
You need to study economic history, in particular the Fed Chair Paul Volcker's response to rabid 1970s-early 1980s inflation.

It was even called "The Volcker Shock".

In summary, he jacked interested rates up sky high, crushed the economy, crushed inflation.

https://www.youtube.com/watch?v=XZDe9mr ... treetFilms
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GratuitousScrubs
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Re: Accumulators, what's your response to inflation?

Post by GratuitousScrubs »

Wage growth is keeping up with inflation, but this is a lumpy effect. It's not equally true across all industries, and within any given industry it may manifest in different ways (steady COLAs, vs. retention bonuses and signing bonuses). I think we need to understand more about the OPs profession in order to opine on his/her situation.

The answer to the question is:
1. Assess the overall trend in your profession. Are wages up, down, or flat?

2. If wages are up in your industry, but your wage isn't, then you have to figure out whether you can get more from your current workplace or if moving up the income scale requires a job change. It's not the same everywhere.

3. Assess your current savings rate relative to your financial goals. You have a declining real savings rate, but is that something that will put you off track? Or were you an excellent saver in the past and can absorb this change without compromising important long term goals?

Personally, I think in our family we just naturally adjust consumption around the changes in prices. Mostly substitution, a little bit less frequency eating out, a less expensive trip, etc. The other big one is deferring big expenses. My experience is that when I say, "Maybe I'll get do that (new car/bathroom reno/club membership) next year instead," I just never do it. I think when you're fortunate enough to make a great salary, the money does tend to burn a hole in your pocket, even for a boglehead. So, there's just less of that happening if you continue to prioritize saving.
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Re: Accumulators, what's your response to inflation?

Post by JBTX »

exodusing wrote: Wed Feb 07, 2024 9:55 am
tashnewbie wrote: Wed Feb 07, 2024 9:50 am
exodusing wrote: Wed Feb 07, 2024 6:03 am One interesting phenomena is that the Fed has been raising interests rates to lower inflation, higher interest rates raise mortgage rates, which raises housing costs, which is a major component of inflation. This may cause those looking to buy a house to wait which would lower demand and therefore prices, which may prompt the Fed to cut rates which will also lead to lower mortgage rates which could lead to further softening in housing prices. Housing represents about one-third of the value of the market basket of goods and services used for to track inflation (the actual computation is a bit complex).

If this is plausible, the answer would be to wait a bit to buy a house.
Are you saying you think lower mortgage rates would cause housing prices to go down too?

In my local area, it does appear that housing prices are softening some compared to the last couple years, probably due to the higher mortgage rates. I am skeptical that prices would decrease further if mortgage rates come down.

I'm hoping to buy this year and have been sort of watching the market for the past few years. Hindsight is 20:20, and I wish I would've bought in 2019 or 2020, but I don't think I'm going to intentionally continue to sit on the sidelines, hoping prices decrease. I'm planning to buy a house that I can afford, at a price that I think is reasonable. It will likely be more than I could've bought it for in 2020 or 2021 and may well be more than I could get it in 2025, but I can't live my life based on what-ifs.
I'm saying higher mortgage rates result in higher purchase and carry costs. Prices are also up. Mortgage rates appear to be up due to the Fed raising rates and are likely to come down when the Fed lowers.

Also, since cost of housing is higher due to higher mortgage payments, the shelter component of inflation (which is about one-third of CPI) seems to have increased as a result of the Fed's raising rates to lower inflation,
CPI housing component is not based upon house prices or mortgage payments. It is based upon actual rents and imputed rents. It is true that there is an indirect relationship between carrying costs and rents but the linkage isn’t direct
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Re: Accumulators, what's your response to inflation?

Post by JBTX »

SavinMaven wrote: Mon Feb 05, 2024 1:57 pm
CyclingDuo wrote: Mon Feb 05, 2024 12:35 pm If your savings is automatic out of your paychecks based on a percentage of income + the employer's percentage match, how is your rate of savings going down?
The bulk of our savings is self-directed - an automatic transfer to Vanguard out of our checking account. The dollar amount I transfer hasn't risen in a couple years, even as we've gotten raises. The rising cost of living is 'eating' the raise instead, and I'm curious how others are adjusting their budgets, or savings, or expectations to account for the inflationary environment.
I’m not following. A good chunk of a raise is really an inflation adjustment. So if the raise percent equals your personal expense inflation your savings should go up the same percent.

Also, most people here are homeowners and unless you have moved, your mortgage does not go up. Even if expense inflation were higher than your raise, there is no inflation on your mortgage payment so on a net basis your raises should still cover your expense inflation.

Now if someone rents, or moved to a home at a higher interest rate, then yes, it’s entirely plausible that you are saving less.
Chili Powder
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Re: Accumulators, what's your response to inflation?

Post by Chili Powder »

watchnerd wrote: Tue Feb 06, 2024 12:41 pm
Seems to me (assuming you're skilled and in a high demand profession in the top tiers of income) it nets out.

HCOL-VHCOL = higher housing costs + higher salary

When it comes to wealth accumulation, living in HCOL+ seems like a net positive if you're in the top 20% of income, assuming you save/invest.
If an area has higher incomes, it should be reflected in the average incomes though. Los Angeles average income is about $75,000 vs Chicago of $72,000. I don't understand why someone be more above average in one location vs the other.

As a separate point from what you stated, I would also add that I don't think generalized 'cost of living' statements are helpful, since they will include a wide variety of things that won't apply to people equally. Not to mention online shopping is everywhere, so there is basically a nationwide ceiling on prices anyway. Housing is different though because it is a large expense that is easily looked up across the country, and there is a pretty huge disparity in prices across the country as well.
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watchnerd
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Re: Accumulators, what's your response to inflation?

Post by watchnerd »

Chili Powder wrote: Fri Feb 09, 2024 6:39 pm
watchnerd wrote: Tue Feb 06, 2024 12:41 pm
Seems to me (assuming you're skilled and in a high demand profession in the top tiers of income) it nets out.

HCOL-VHCOL = higher housing costs + higher salary

When it comes to wealth accumulation, living in HCOL+ seems like a net positive if you're in the top 20% of income, assuming you save/invest.
If an area has higher incomes, it should be reflected in the average incomes though. Los Angeles average income is about $75,000 vs Chicago of $72,000. I don't understand why someone be more above average in one location vs the other.

As a separate point from what you stated, I would also add that I don't think generalized 'cost of living' statements are helpful, since they will include a wide variety of things that won't apply to people equally. Not to mention online shopping is everywhere, so there is basically a nationwide ceiling on prices anyway. Housing is different though because it is a large expense that is easily looked up across the country, and there is a pretty huge disparity in prices across the country as well.
That's why I said "if you're in the top 20%".

The top 20% will be higher income in a VHCOL area than in a LCOL area. You can thus accumulate wealth and scale down to a cheaper area later in life after you've made the big bucks in the big city.
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Chili Powder
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Re: Accumulators, what's your response to inflation?

Post by Chili Powder »

watchnerd wrote: Fri Feb 09, 2024 7:41 pm
That's why I said "if you're in the top 20%".

The top 20% will be higher income in a VHCOL area than in a LCOL area. You can thus accumulate wealth and scale down to a cheaper area later in life after you've made the big bucks in the big city.
I decided to look it up because I wasn't sure if the numbers I cited were mean or median. Here is the blurb they have that explains the figures:

"The Bureau of Economic Analysis (BEA) county and metropolitan area per capita personal income statistics are calculated by dividing personal income with population. BEA used Census population figures to calculate annual per capita personal income statistics for 2020 through 2022. For 2010 through 2019, BEA produced intercensal annual county and metropolitan area population statistics that are tied to the Census Bureau decennial counts for 2010 and 2020. BEA developed intercensal population statistics because this data was not published when Census released county and metropolitan area population data for 2020 through 2022, which are based on the 2020 decennial counts. Census will release official intercensal population data in 2024.

BEA produced intercensal population figures to create consistent time series that are used to prepare per capita personal income statistics. BEA used the Census Bureau Das Gupta method, modified to account for an extra leap year day, to produce the intercensal population figures that will be used until Census releases its official intercensal population data."

https://www.bea.gov/note-capita-personal-income

To me that seems like it is a mean average, so where you fall on the curve should not make much of a difference. The top 20% of Chicago should make about the same as the top 20% of Los Angeles. That might not be true, but I don't see anything to suggest otherwise.

I would also say someone considering moving should just use these sorts of data points as guide lines of where to even look to begin with. Like, if the average income of an area was in the 40K range or something, you might be better off just ignoring it. Looking over this housing price vs income data is easy to do though. If someone is unhappy with their current situation, they can try and find a good combo and then start looking for and applying for specific jobs in that area.

It may be that we are talking past each other a bit, since you are talking about people who make a lot of money already. I would assume people in that circumstance shouldn't have much trouble dealing with inflation, such that this thread wouldn't be pertinent to them.

I am also talking about these two specific cities that have about the same average income but very different housing prices, as opposed to low cost of living vs high cost of living generically.
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Re: Accumulators, what's your response to inflation?

Post by Nottingham »

Chili Powder wrote: Fri Feb 09, 2024 6:39 pm
watchnerd wrote: Tue Feb 06, 2024 12:41 pm
Seems to me (assuming you're skilled and in a high demand profession in the top tiers of income) it nets out.

HCOL-VHCOL = higher housing costs + higher salary

When it comes to wealth accumulation, living in HCOL+ seems like a net positive if you're in the top 20% of income, assuming you save/invest.
If an area has higher incomes, it should be reflected in the average incomes though. Los Angeles average income is about $75,000 vs Chicago of $72,000. I don't understand why someone be more above average in one location vs the other.

As a separate point from what you stated, I would also add that I don't think generalized 'cost of living' statements are helpful, since they will include a wide variety of things that won't apply to people equally. Not to mention online shopping is everywhere, so there is basically a nationwide ceiling on prices anyway. Housing is different though because it is a large expense that is easily looked up across the country, and there is a pretty huge disparity in prices across the country as well.
Well, you might be able to order a pair of jeans for the same price in VHCOL vs LCOL but when it's time to order construction materials rest assured you'll be ripped off pretty well at VHCOL. An iphone and a pair of jeans don't have any substantial impact on quality of live while construction materials do.

Still, it's better to be rich in VHCOL, than in LCOL.
stoaX
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Re: Accumulators, what's your response to inflation?

Post by stoaX »

unwitting_gulag wrote: Thu Feb 08, 2024 2:46 pm For me, the real sting of inflation isn't that goods or services cost more, or that my monthly capacity to save is diminished. Both are true, but they don't dominate. Rather, it's that my portfolio is objectively worth less today, than it was say two years ago, even if in raw numbers the dollar-figure may be higher. Inflation means that the S&P's record high, even with dividends reinvested, isn't really such a record... or if it is, the cumulative increase just barely grazes above zero.
Thanks for pointing out this important but often overlooked aspect of inflation. Perhaps I will try and calculate my inflation adjusted net worth.
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Re: Accumulators, what's your response to inflation?

Post by Grogs »

Chili Powder wrote: Fri Feb 09, 2024 8:06 pm
watchnerd wrote: Fri Feb 09, 2024 7:41 pm
That's why I said "if you're in the top 20%".

The top 20% will be higher income in a VHCOL area than in a LCOL area. You can thus accumulate wealth and scale down to a cheaper area later in life after you've made the big bucks in the big city.
I decided to look it up because I wasn't sure if the numbers I cited were mean or median. Here is the blurb they have that explains the figures:

"The Bureau of Economic Analysis (BEA) county and metropolitan area per capita personal income statistics are calculated by dividing personal income with population. BEA used Census population figures to calculate annual per capita personal income statistics for 2020 through 2022. For 2010 through 2019, BEA produced intercensal annual county and metropolitan area population statistics that are tied to the Census Bureau decennial counts for 2010 and 2020. BEA developed intercensal population statistics because this data was not published when Census released county and metropolitan area population data for 2020 through 2022, which are based on the 2020 decennial counts. Census will release official intercensal population data in 2024.

BEA produced intercensal population figures to create consistent time series that are used to prepare per capita personal income statistics. BEA used the Census Bureau Das Gupta method, modified to account for an extra leap year day, to produce the intercensal population figures that will be used until Census releases its official intercensal population data."

https://www.bea.gov/note-capita-personal-income

To me that seems like it is a mean average, so where you fall on the curve should not make much of a difference. The top 20% of Chicago should make about the same as the top 20% of Los Angeles. That might not be true, but I don't see anything to suggest otherwise.

I would also say someone considering moving should just use these sorts of data points as guide lines of where to even look to begin with. Like, if the average income of an area was in the 40K range or something, you might be better off just ignoring it. Looking over this housing price vs income data is easy to do though. If someone is unhappy with their current situation, they can try and find a good combo and then start looking for and applying for specific jobs in that area.

It may be that we are talking past each other a bit, since you are talking about people who make a lot of money already. I would assume people in that circumstance shouldn't have much trouble dealing with inflation, such that this thread wouldn't be pertinent to them.

I am also talking about these two specific cities that have about the same average income but very different housing prices, as opposed to low cost of living vs high cost of living generically.
You can find pretty good information on household income by city here: https://dqydj.com/income-by-city/. It seems to support your suggestion that LA and Chicago household incomes are pretty much identical, for example @ the 80th percentile, LA is $171k and Chicago is $172k. They stay right together except at the very lowest and highest percentiles. SFO is a different beast - 80th percentile is $252k - but median homes are $1.5-2MM.
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jabberwockOG
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Re: Accumulators, what's your response to inflation?

Post by jabberwockOG »

Tamalak wrote: Mon Feb 05, 2024 12:36 pm Half of my net compensation goes into investments. It's my first "expense". The other expenses have to fit in the other half.
This. This is the way you build wealth. Not necessarily 50% required by any means, it can be 10% or 15%. We generally saved 15%-25% depending on where I was in my career earnings (was lucky enough to be highly paid in later years) but the savings always happened off the top, and we adjusted our lifestyle and "wants" to fit what remained.

Inflation or market being up or down is largely irrelevant and mostly noise in terms of long term investments. Of course you have to find a way to grow your career and the value of your associated skill set so that you can earn more as you gain experience and move forward thru time.

First priority on what you earn must be how much should first go to savings and investment for the long run. All other expenses take secondary priority.

Make a plan now for a financially secure future and then diligently execute on it, month in month out, year after year. Its almost never too late to start.

I bet that most of us who are enjoying a secure retirement know some folks our age that are driving uber, or delivering grub hub, etc., either part or full time just to make ends meet, with literally no hope of a real retirement in their future. Unfortunately most of my childhood/teenage years friends growing up are now in this sad situation. Guess what most of those folks failed to do in their prime earning years?
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Re: Accumulators, what's your response to inflation?

Post by jfmiii »

Chili Powder wrote: Mon Feb 05, 2024 8:02 pm I would stress the importance of life style choices in managing expenses in general, and managing inflation is basically just a subset of managing expenses. To expand, choosing a place to live with lower housing costs and higher income opportunities is much easier then people may think. You can google average costs of a house and even use Google Map street view to check out neighborhoods all over the country and the world. Job hunting over a distance might be more difficult, and to be fair I have not done any job hunting in a while. But I think people who are struggling with housing based inflation should really consider moving as a solution. I live in a middlish cost of living area, and that helps keep expenses down in a way that really no other action I could take would.

I actually don't live in either of these cities, but to give an example, the average price of a house in Chicago is $279,000 as per Zillow and the St. Louis Fed lists the Chicago area's per capita personal income as about $72,500. https://fred.stlouisfed.org/series/CHIC917PCPI Compare this to Los Angeles, which has an average house price of $918,000 according to Zillow, while only having a per capita personal income of about $76,500. https://fred.stlouisfed.org/series/LALBA906PCPI Obviously the ratio of housing cost to income potential is wildly different between the two areas. Now a days it is basically free to look up this information, so I think moving should be something people who are struggling should consider more.

I would also say don't stress the little things. Getting the best price on shampoo isn't going to move the needle much to your benefit. Worse, if you wear yourself out stressing about that kind of thing to such an extent that you don't feel like thinking about or researching more important life style choices, you actually move the needle to your detriment.
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
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Re: Accumulators, what's your response to inflation?

Post by sambb »

because of inflation, im trying to keep expenses lower so savings can still be signficant. Would avoid VHCOL locations.
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Re: Accumulators, what's your response to inflation?

Post by Chili Powder »

jfmiii wrote: Sat Feb 10, 2024 8:25 am
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
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Re: Accumulators, what's your response to inflation?

Post by exodusing »

unwitting_gulag wrote: Thu Feb 08, 2024 2:46 pm For me, the real sting of inflation isn't that goods or services cost more, or that my monthly capacity to save is diminished. Both are true, but they don't dominate. Rather, it's that my portfolio is objectively worth less today, than it was say two years ago, even if in raw numbers the dollar-figure may be higher. Inflation means that the S&P's record high, even with dividends reinvested, isn't really such a record... or if it is, the cumulative increase just barely grazes above zero. If I save more, by one of those spunky frenetic self-help methods of upskilling or whatever, to get a higher-paying job, while keeping my lifestyle in check, and hence, having more to save... OK, fantastic, pat on the back, etc. But how much would additional savings move the proverbial needle... if the needle is spinning backwards, because of inflation?

Now suppose that we receive felicitous news in coming months, that inflation is back down to 2%. This is, I think, entirely possible. But the damage to one's portfolio is already done! The former $X is now only worth $0.92X, or whatever it is. It's going to be up to the market, and far less on me personally, to make good on the difference.
Most people's income has gone up by more than inflation, so if anything capacity to save has increased. But that doesn't mean everyone's income has.

Markets go up and down, but tend to go up more than they go down. If the pattern holds, you should be better off after a while. Market fluctuations can greatly exceed the recent bout of higher inflation.
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Re: Accumulators, what's your response to inflation?

Post by Chili Powder »

Chili Powder wrote: Sat Feb 10, 2024 8:56 am
jfmiii wrote: Sat Feb 10, 2024 8:25 am
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
I wanted to follow up on this since some people might not be familiar with these kinds of searches. But here:

https://www.zillow.com/chicago-il/

there are a little over 5000 houses for sale in Chicago. There are other websites as well, but I tend to use Zillow for this kind of thing. This is also kind of the overall point I am getting at. You could look through this sort of stuff while you are eating breakfast. I mentioned in my first post, you can even use Google Maps Street view to take a look around the neighborhood from the comfort of your own home.

So especially now a days people shouldn't feel trapped in their housing situations.
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Re: Accumulators, what's your response to inflation?

Post by watchnerd »

Chili Powder wrote: Sat Feb 10, 2024 9:18 am
Chili Powder wrote: Sat Feb 10, 2024 8:56 am
jfmiii wrote: Sat Feb 10, 2024 8:25 am
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
I wanted to follow up on this since some people might not be familiar with these kinds of searches. But here:

https://www.zillow.com/chicago-il/

there are a little over 5000 houses for sale in Chicago. There are other websites as well, but I tend to use Zillow for this kind of thing. This is also kind of the overall point I am getting at. You could look through this sort of stuff while you are eating breakfast. I mentioned in my first post, you can even use Google Maps Street view to take a look around the neighborhood from the comfort of your own home.

So especially now a days people shouldn't feel trapped in their housing situations.
Damn that's some cheap real estate!

The empty lot next to ours sold for more $100k more than those houses.
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Re: Accumulators, what's your response to inflation?

Post by Grogs »

watchnerd wrote: Sat Feb 10, 2024 9:37 am
Chili Powder wrote: Sat Feb 10, 2024 9:18 am
Chili Powder wrote: Sat Feb 10, 2024 8:56 am
jfmiii wrote: Sat Feb 10, 2024 8:25 am
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
I wanted to follow up on this since some people might not be familiar with these kinds of searches. But here:

https://www.zillow.com/chicago-il/

there are a little over 5000 houses for sale in Chicago. There are other websites as well, but I tend to use Zillow for this kind of thing. This is also kind of the overall point I am getting at. You could look through this sort of stuff while you are eating breakfast. I mentioned in my first post, you can even use Google Maps Street view to take a look around the neighborhood from the comfort of your own home.

So especially now a days people shouldn't feel trapped in their housing situations.
Damn that's some cheap real estate!

The empty lot next to ours sold for more $100k more than those houses.
You can go here to look at median home sale prices by county: https://www.nar.realtor/research-and-st ... ge-payment. In the US, 37.4% of counties are under $150k, 50.9% are $150-$350k, and 8.8% are $350-$550k. Only about 3% of counties have a median sale price of > $550k. By population, it's a lot more than 3% of the homes, but we still tend to forget that there are vast swaths of the countries where homes sell for even $100k or less.
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watchnerd
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Re: Accumulators, what's your response to inflation?

Post by watchnerd »

Grogs wrote: Sat Feb 10, 2024 11:22 am
watchnerd wrote: Sat Feb 10, 2024 9:37 am
Chili Powder wrote: Sat Feb 10, 2024 9:18 am
Chili Powder wrote: Sat Feb 10, 2024 8:56 am
jfmiii wrote: Sat Feb 10, 2024 8:25 am
Your Chicago comparison doesn’t tell the whole story. I live in the northern suburbs of Chicago (still Cook county). I bought my 900k house in 2019 and had a tax payment of 19k a year until I was reassessed last year and now pay 25k a year for a house that is now probably worth 1.3mm. The fiscal problems in IL have certainly kept a lid on our home price appreciation but taxes continue to rise. For what it’s worth, my home’s 2024 value of 1.3mm is what the prior owners paid in 2006. Looking back, the property tax payment on my house in 2006 was 12k.
I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
I wanted to follow up on this since some people might not be familiar with these kinds of searches. But here:

https://www.zillow.com/chicago-il/

there are a little over 5000 houses for sale in Chicago. There are other websites as well, but I tend to use Zillow for this kind of thing. This is also kind of the overall point I am getting at. You could look through this sort of stuff while you are eating breakfast. I mentioned in my first post, you can even use Google Maps Street view to take a look around the neighborhood from the comfort of your own home.

So especially now a days people shouldn't feel trapped in their housing situations.
Damn that's some cheap real estate!

The empty lot next to ours sold for more $100k more than those houses.
You can go here to look at median home sale prices by county: https://www.nar.realtor/research-and-st ... ge-payment. In the US, 37.4% of counties are under $150k, 50.9% are $150-$350k, and 8.8% are $350-$550k. Only about 3% of counties have a median sale price of > $550k. By population, it's a lot more than 3% of the homes, but we still tend to forget that there are vast swaths of the countries where homes sell for even $100k or less.
Sure.

But those homes were in *Chicago*, not the middle of Nebraska.

For comparison, I live in a Seattle ex-urb county, which by that map is in the 8.8% tier of median price of $350k-$550k.

And our particular waterfront neighborhood is much more expensive than the median.
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Nver2Late
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Re: Accumulators, what's your response to inflation?

Post by Nver2Late »

Initially, our response to inflation was to not buy stuff. We have mental price points and when stuff goes above it, we refuse to purchase it. I've always felt that the consumer has the power to control inflation, but it takes a collective effort.

That being said, after doing our 2023 expense analysis, inflation hit home for us in 2023. Although our overall spending was down -19.6%, our core expenses increased +37.5%. We finally stopped putting off some deferred needed expenses and relented on things we were refusing to buy at the new price points. The thing that saved us on the expense front is unfortunately lower household income, which lowered medical expenses by -44.2% (more PTC) and taxes by -53.6%. I'm not sure if that is a blessing or a curse, but leaning toward the latter.

On the investment response front, we hit our target number (determined in 2016) this year, two years before target, but expenses are now also higher than expected and we are shifting the goal posts out a few years. We're going to keep at least part-time work going to supplement until we hit our new number. So instead of retiring at target on schedule, we're now downshifting and extending, and we'll see where we up.
"Better is the enemy of good." Good is good.
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Re: Accumulators, what's your response to inflation?

Post by alpenglow »

Nottingham wrote: Mon Feb 05, 2024 4:58 pm I stopped drinking my favorite booze as it's now $75 vs $40 pre-covid.
Alcohol is the biggest cut from the "budget" (I don't actually track/budget per se) for price and health reasons. Some craft brew prices are getting out of control IMO. I just can't justify spending $20+ on a 4 pack. We're also focusing on better value wines with great success. Don't even get me started on whisk(e)y prices.
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Re: Accumulators, what's your response to inflation?

Post by watchnerd »

alpenglow wrote: Sat Feb 10, 2024 11:43 am
Nottingham wrote: Mon Feb 05, 2024 4:58 pm I stopped drinking my favorite booze as it's now $75 vs $40 pre-covid.
Alcohol is the biggest cut from the "budget" (I don't actually track/budget per se) for price and health reasons. Some craft brew prices are getting out of control IMO. I just can't justify spending $20+ on a 4 pack. We're also focusing on better value wines with great success. Don't even get me started on whisk(e)y prices.
Liquor is particularly expensive here in WA state, where it gets taxed more than wine and beer.
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Re: Accumulators, what's your response to inflation?

Post by Nver2Late »

alpenglow wrote: Sat Feb 10, 2024 11:43 am I just can't justify spending $20+ on a 4 pack.
I agree. I thought 8.99 at Costco for a 4-pack (16 oz) for local microbrews was expensive. I definitely wouldn't pay $20.
"Better is the enemy of good." Good is good.
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Re: Accumulators, what's your response to inflation?

Post by Tundrama »

…even when we have money to burn, we never buy anything that’s considered a ‘want,’ without due diligence. I don’t care if it’s a $139.00 heating blanket on Amazon.

Here’s what I know among the average hard working person with a great portfolio; cash and investments.
A man is splitting firewood all day long on a hot, August summer day. He walks into the house and his eyes turn toward the kitchen faucet and then glances at the frig. Inside the frig are bottles of beer recently purchased in haste from a local brewery than are not only over priced, the quality in terms of beer, is green.

The man grabs a glass from the cabinet and fills it with tap water and smiles.

There ya go. After working a lifetime to accumulate, getting screwed on any level is the bar we focus on.

It ain’t inflation. Simply because we are in a low inflation year, we still complete our due diligence and self imposed rules still apply.

…and yes, we screwed up on the beer!

Laugh all you want. The ‘bet,’ in the movie…Trading Places, has more meaning than humor.
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Re: Accumulators, what's your response to inflation?

Post by A'sBud »

Let's not forget QE and the huge run up in M2. The Fed increased M2 by 40% and they aren't pulling it back. They increased the money supply by 40% - that's driving inflation. This isn't about some phantom inflation that just showed up, and now we have expensive housing this is about the Fed creating $$ and creating inflation.

It's not "ok" for the Fed and politicians to mess with our money supply and steal dollars from savers - accumulators. Inflation spent/stole much more of my stash over the past few years than I ever would. They're spending OUR money like fools.
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Re: Accumulators, what's your response to inflation?

Post by cbs2002 »

watchnerd wrote: Sat Feb 10, 2024 11:30 am
Grogs wrote: Sat Feb 10, 2024 11:22 am
watchnerd wrote: Sat Feb 10, 2024 9:37 am
Chili Powder wrote: Sat Feb 10, 2024 9:18 am
Chili Powder wrote: Sat Feb 10, 2024 8:56 am

I think data and averages are more helpful then anecdotes. Your house is 3x to 4x the average price of Chicago houses, so you could probably find a cheaper house even within your own city. I would say that supports my overall suggestion that moving should be considered as a response to housing inflation.
I wanted to follow up on this since some people might not be familiar with these kinds of searches. But here:

https://www.zillow.com/chicago-il/

there are a little over 5000 houses for sale in Chicago. There are other websites as well, but I tend to use Zillow for this kind of thing. This is also kind of the overall point I am getting at. You could look through this sort of stuff while you are eating breakfast. I mentioned in my first post, you can even use Google Maps Street view to take a look around the neighborhood from the comfort of your own home.

So especially now a days people shouldn't feel trapped in their housing situations.
Damn that's some cheap real estate!

The empty lot next to ours sold for more $100k more than those houses.
You can go here to look at median home sale prices by county: https://www.nar.realtor/research-and-st ... ge-payment. In the US, 37.4% of counties are under $150k, 50.9% are $150-$350k, and 8.8% are $350-$550k. Only about 3% of counties have a median sale price of > $550k. By population, it's a lot more than 3% of the homes, but we still tend to forget that there are vast swaths of the countries where homes sell for even $100k or less.
Sure.

But those homes were in *Chicago*, not the middle of Nebraska.

For comparison, I live in a Seattle ex-urb county, which by that map is in the 8.8% tier of median price of $350k-$550k.

And our particular waterfront neighborhood is much more expensive than the median.
In general, city of (not talking about metro or suburbs) Chicago housing is less costly than other major US cities. The taxes and lack of appreciation temper that benefit somewhat. It's an unequal city and the averages don't tell the whole story. Large parts are populated by people with little wealth and modest income. A smaller but quite significant portion is populated by people making anywhere from six figure salaries up to ludicrous money. There are large areas where a small vacant lot or so-called teardown go for 500K or more. I don't know LA well at all so I can't say how it compares, but you can find a dirt cheap house in any large Midwest city. The very different - and much more important question - is whether you can afford housing where you actually want to live.

We are thankful to have our housing situation sorted and not care much about acquiring stuff. So inflation hasn't been a huge factor. I've noticed it most in home repairs, travel and restaurant prices. The first we just have to bite the bullet and do, and the second and third are matters of choice and luxury, so not something I can complain about. We know how to cook. Also we are about 75% equities in our portfolio, so that helps a lot.
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Re: Accumulators, what's your response to inflation?

Post by alfaspider »

The problem with inflation is it hits very unequally. Some people get raises, others don't. Some are locked into a 2.7% mortgage, others are shelling out 7%+. Some folks got 20% raises since 2021, others have gotten nothing. Some have large families and buy a lot of groceries, others just feed themselves. Overall, real wage growth is outpacing inflation- but not for everyone.

Psychologically, people remember how much things used to cost far more than they remember how much they used to make. Even when people get raises that outpace inflation, they still resent the higher prices even when they are coming out ahead.

One thing that people do to manage is good substitution. Someone was complaining about a hotel going up from $50 to $600 a night. While I somewhat doubt that's an apples to apples comparison (perhaps a weekday in January is very different from a summer weekend), there are no doubt plenty of hotels for less than that in desirable vacation destinations on the East Coast. Most people would simply choose a different one if looking to economize.

As a final note, the end of the high inflation of the 2022-early 23 period does not mean prices go down. It just means prices don't go up 10% a year. Latest numbers are 3%, which is slightly above target but not enough for most folks to really notice except for the fact that very specific items get hit harder than others.
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Re: Accumulators, what's your response to inflation?

Post by AnnetteLouisan »

Both my parents are eating and drinking less, at least in part because of the prices even though they don’t have to worry. They also started buying lower quality food because it is cheaper. One went on meals on wheels and started fainting, leading to quite high medical costs and inconvenience. I’m telling you this so that you can be alert to it in your relatives and bring or send them groceries here and there.

I personally am spending more in many areas (housing, transportation and groceries), having planned for it, since the return of inflation was foreseeable and anticipated for those who lived through the 70s. But I have cut back on other areas (dining out, travel and clothes).
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Re: Accumulators, what's your response to inflation?

Post by StayTheCourse60 »

Commit to a plan to progressively increase taxable brokerage account investments each month. My plan is the increase my monthly contribution by $500 every 3 years.

Delayed gratification however possible, from house remodel projects to Amazon purchases. Didnt "celebrate" my 40th birthday with a party, night out or presents.

Basically freeze lifestyle changes wherever possible while not "suffering". Find things to do that are reduced cost. Sell no longer used items from my house that are no longer used.
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Re: Accumulators, what's your response to inflation?

Post by A'sBud »

Cut back on *some* things like less meat and more organic vegetable protein because it's a game for me and healthier, not because I must. Finding values, deals is fun. I'm working on increasing my annual spend. For me, that means spending more money annually on a few discretionary "extras" that meet my criteria of deal/pricing.
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