How to Calculate Salary Increase Based on Inflation
The following are the steps to calculate a wage increase based on inflation.
Step #1: Get the 12-month rate of inflation from the Consumer Price Index (CPI). As of this writing, the 12-month rate of inflation is 2%.
Step #2: Convert the percentage to a decimal by dividing the rate by 100 (2% = 2 ÷ 100 = 0.02).
Step #3: Add one to the result from Step #2 (1 + 0.02 = 1.02).
Step #4: Multiply your current wage or salary by the result from Step #3, which will give you your inflation-adjusted salary.
Step #5: Subtract your current wage or salary from the result in Step #4, which will give you the CPI increase amount.
Example: If your current annual salary is $50,000, and the 12-month inflation rate is 2%, your salary adjusted for inflation would be $51,000 (50,000 × 1.02 = 51,000), which would make the CPI increase amount $1,000 ($51,000 − $50,000 = $1,000).
What or Who is Eating Away at Your Buying Power?
I often hear people complain about how inflation is forcing them to earn higher and higher incomes to maintain their current lifestyles.
Many of these same people make big-ticket-item buying decisions faster than I decide what I'm going to wear to work (I work at home!).
Plus, between mortgage payments, loan payments, and credit card payments, most are spending hundreds, even thousands of dollars a month to pay for interest charges.
When you spend a dollar to pay interest charges, what do you have to show for it?
The item you purchased on credit?
No! Because had you purchased the item with cash, you wouldn't have incurred any interest cost at all.
Therefore, you have nothing to show for the dollar spent (actually less than nothing if you consider the lost interest earnings).
Does Your Bank Have Carry-Out Personnel?
Pay a visit to your local lending institution (usually recognizable by being one of the nicest buildings in town).
When you enter the building, try to find a physical product to purchase that isn't just a signed document.
Can you find an assembly line churning out tangible products?
Can you find a Lay-Away counter?
Are employees hanging around the front door to help you carry out your purchases?
Of course not.
Lending institutions rent the use of your money for a small fee and then rent it back to you at a much higher fee. That's it. That's all they do!
The truth of the matter is, spending a dollar in interest only leaves you with one less dollar to spend (or invest). In other words, that dollar's buying power was reduced by 100%!
You worked just as hard for the interest dollar as the other dollars you earned, yet you received nothing in return for it. Doesn't that bother you? As you can tell, it bothers me ... a lot!
The buying power bottom line? If you are one of those people who fail to fully investigate buying alternatives before you make your buying decisions, or you are paying hundreds or thousands of dollars in monthly interest charges, I'm sorry, but YOU are your buying power's worst enemy, not inflation.
Are Banks Evil?
So do I think lending institutions are evil?
Lending institutions provide a crucial role in providing start-up and operating capital to the businesses that create our jobs. It's not the lending institution's fault that expertly designed sales presentations entice us into buying on credit (instant gratification), instead of saving up to pay cash for our purchases.