Is Your Cost Of Living Rising?

By How Much?

Each month Statistics Canada releases their latest numbers on the changes in the Consumer Price Index (CPI). This month total CPI for the last 12 months increased by 2.5%, which is the largest year over year increase since February of 2012. Last year, the June 2017 CPI (for the previous 12 month period) was announced at 1.0%.

According to Stats Can, transportation costs, especially the price of gasoline as well as food purchased at restaurants were the main culprit for the increases.

Why do we care?

A key assumption in our client Wealth Forecasts is the future growth in the costs of continuing the lifestyle that you wish to pursue. Everybody consumes differently: if you don't drink adult beverages (alcohol and maybe one day, cannabis infused drinks) or smoke, your cost of living may not rise as much as someone who does. Same with driving, if you drive often, perhaps to a weekend retreat, you will likely have a cost of living that increases faster, year to year, than someone who does not.

Stats Can's "basket of goods" that it follows is an average, but individually, few Canadian folks actually fall into that average and even fewer of our clients do. I don't.

Nonetheless, if you are conscientious about your spending habits (and you really should be), it may be a worthwhile exercise to make a year to year comparison of how much you spend and on what.

Here is what Stats Can's basket suggests that the average Canadian household spends on a percentage basis:

Almost 1/2 of spending is on Food (16%) and Shelter (27%). Add in the Household Operations category and you are at 56%.

Add in Transportation and you are at about 3/4 of all spending.

How do you compare?

More importantly, how do we adjust for the future cost of living?

We can assume the average, but that may be misleading when we try to project your future needs. And importantly as the portfolio management team that determines the optimal investing strategy (return per unit of risk), when we determine what kind of asset growth you need to stay ahead of the increase in your cost of living.

The big long-term risk is running out of money. The key short-term risk, is taking too much risk (with your investments) as you try to grow your money from one year to the next.

Again, the difference between gambling and stewardship: Gamblers chase higher returns. Stewards of wealth determine their needs and build a strategy around them.

Need help with the stewardship of your wealth?

We are always happy to do so.