Personal Inflation

 
Recently there was some interesting discussion on Hacker News (here and here) regarding whether or not you can retire at 30 with a $1-5million (after selling your company).

That question aside, one major input is inflation, and all these models make the assumption that it is the same for everyone. Depending on your personal circumstances, I think your personal inflation rate could vary highly from the average.

It comes down to that the basket of goods you purchase over the time frame in question may look very different than the CPI (official) basket. Here are some extreme examples to highlight the differences:

  • Say you sell your company and buy a house. This expenditure probably dwarfs all your others. If you consider the time period from when you started your company, you might have had a decently negative personal inflation rate due to falling house prices.

  • Or say your biggest expenditure is commodity servers, which drop in price rapidly. If your needs are relatively constant, your personal inflation rate could similarly be negative as these assets depreciate fast. 

  • Taking a longer view, suppose you never have kids (read education expenses), and you buy your house in this economy and live in it indefinitely. Assuming you just buy normal stuff the rest of life (food, etc.) your personal inflation rate should be rather under control. You somewhat cut out a lot of the biggest drivers long term (education, housing) and you gained some negative inflation by buying your biggest expenditure (house) at the right time. 

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