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Predicting the future

Submitted by Philip Brewer on October 18, 2007 - 07:04.

There are three things you need to pull apart to look at future expenses.

Inflation is actually the easiest, because it doesn't change the relative prices of things, it just changes what we call those prices. (That is, we used to call it $100 and now we call it $200, but it's really the same value in terms of the number of hours we have to work to pay for it or in terms of what other goods or services we could swap for it.)

The killers for predicting future costs are:

1) Changes in relative costs. Who would have figured that advances in technology, combined with manufacturing overseas would give us $49 DVD players? It was only 15 years ago that I spent over $100 on the absolute cheapest CD player available and figured I'd gotten the deal of a lifetime. Medical care has gotten vastly more expensive, but has also gotten a lot better. Housing has gotten more expensive without getting significantly better (except for getting bigger).

2) Changes in standard of living. Critical resources like oil are going to get more expensive, making us all poorer.

I think the best way to control your expenses going forward will be to own stuff (where you can) and to stay flexible (everyplace else). Stuff that you own is stuff that you don't have to worry about the future price of. Stuff that you can't own... you simply have to accept that you'll need to adjust to the future realities as far as buying it in the future--accept that you may have to make do with substitutes.

I wrote a bit a while back specifically about buying things now to take advantage of the cheap energy that's available now in a piece called Fix energy in tangible form.

Sorry I don't have a number for you.

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