The Simplified Resource for Everything Money: What is the actual inflation rate one should use for FIRE?

My son. perspiring profusely, came back empty handed after walking 400m in the sweltering heat.

"Dad, your $1.50 is not enough! My milo peng cost $1.80 now. "

A teachable moment.

I hoped he learnt two things from this ordeal.

Inflation and the need to plan for things going wrong a.k.a margin of safety and ask for some additional coins in future.

"Here is 30 cents! Go, my young padawan and bring back the elusive milo peng to quench your thirst. Get me the delectable bak chor mee, less chilli. Take another $3.50 for the mee. It was $3.50 last month."

He rushed out immediately. Guess he didn't learnt his lesson on the need for a margin of safety and inflation. He will learnt some day..for he must learn.

Weightage of basket (Figure 1)

Source : Department of Statistics Singapore

Breakdown on Basket (Figure 2)

Source: Department of Statistics Singapore

Annual inflation rates from 1960 to 2020 (Figure 3)

Source: Data.gov.sg

The latest annual inflation rate (released in Sep 2021) is 2.5%. This is the short term data based on the previous year and is according to the CPI weighting pattern in figure 1. If one looks at the weightage of the basket of goods used to measure this inflation rate, i can't say it reflects well the inflation experienced by the residents of Singapore. Look at the lower weightage of Healthcare (6.6%) and Education ( 6.6%) compared to Recreation and Culture (7.9%).....I don't think i spend much on Recreation and Culture as compared to Healthcare and Education.

For a more accurate inflation figure to use, I think one should look at one's personal spending habits to determine one's estimated inflation rate.

A 50 year old single would not need to care about the inflation for Education but a 25 year old dad with a new born would be really concerned about education inflation.

Based on data from 1960 - 2020, the various long term inflation for the different baskets are shown in Figure 3. Highlighted in yellow are the ones which are important to me and i think to the majority of others. The rest are really non-essential, good to have items( apart from Housing and Utilities which is essential but my housing is settled).

As a matter of prudence, my personal estimated inflation would be 3.22%pa which corresponds to the inflation rate of education.

So what have i been doing to beat this inflation.

Endowus

Endowus opened last year(2020)

My Endowus funds have been doing well at 17.62% returns since i started late last year. I have chosen the customised 60% equity/40% bonds and 100% equity funds and used my SRS funds only, saving on my marginal tax rate yearly on this funds. Do not make the mistake of attributing the performance of funds to Endowus as they are simply a platform to sell funds. You make the choice of funds to buy. ( ok for the customised only funds, they chose the allocation so they had a hand in this).

The use of SRS funds is highly restrictive and i believe placing them with Endowus is the best choice.

Use my Endowus referral code to get $20 in access fee credit.

IBKR

My cash has been placed with InteractiveBrokers due to it's very very low commission charges for both shares, etfs, options and forex transactions and its ability to invest in many differerent countries. What really hits me in the right spot is the ultra low financing fees of between 1.58%pa to 0.75%pa (for USD) depending on amount borrowed which allows me to leverage .

Forex , stock and etfs transaction fees are only around $2-3 per transaction regardless of amount. That's insane. Downside is that some exchange prices like from the US are delayed and one has to pay for live subscriptions which cheapskate me obviously don't. This problem is easily solved by the two brokers below which give free live US prices. I toggle between the apps to look at prices and transact.

Use my IBKR referral code to get free IBKR shares.

Tiger Brokers