Overcoming inflation for good

[Pointedstick]

All the various inflation-related threads recently got me thinking.

Whatever the rate of price inflation is, we need to beat it to even preserve our purchasing power. That got into discussions of what the true rate if price inflation is, and that we can have personal rates of price inflation depending on what we buy. So to simply break even, our investments have to generate a nominal return of 2%, or 3%, or 5%, or 8%, depending on whose version you believe.

But why do we need to preserve our purchasing power? Because in our modern society, we need to buy all kinds of things just to live from one day to the next. Food, water, heat, rent/mortgage, gasoline, insurance... the list goes on. But there's another way: you neutralize the effect of inflation on your monetary expenses by eliminating as many of them as possible.

You can neutralize inflation in the price of eggs by raising chickens. Overcome electricity price inflation by generating it yourself. If the price of manual labor is rising, do your own painting, landscaping, etc. Rising prices of meat? Convert the cost of your next year's meat into the cost of ammunition and gasoline by going hunting. Convert the price of just about anything into a time cost by patiently trawling Craigslist's free section. Learn to sharpen your own knives, build your own furniture, and on and on.

This approach doesn't actually require that you calculate the rate of inflation for these things, and it has the benefit of making you a more capable, awesome person more in tune with the workings of the world all around you. Your investments become responsible for preserving the purchasing power for the expenses you can't get rid of (like property taxes), and funding your ability to learn new skills and acquire things that make you more independent, like tools, solar panels, and internet access. By rendering price inflation increasingly irrelevant to your life, you actually boost the real returns of your investments! And it also magnifies your ability to pay for the purchased luxuries you just can't live without.


Here's a totally extreme example:

• You own a mortgage-free house that was so well-designed and insulated that it heats and cools itself purely through passive solar irradiance and the thermal flywheel effect, or all supplementary heating needs can be met through self-generated electricity or burning wood grown on your property.
• You don't need homeowner's insurance because your house was designed and built in such a manner as to almost entirely eliminate the danger from all possible local hazards. Floods? Your house is built on concrete stilts. Wildfires or termites? Your house is made entirely of nonflammable materials. Earthquakes? Your house is made of earthbags and weighs 5,000 tons. Tornadoes? Your house is subterranean. High crime or unrest? Your house is a virtual fortress with two foot-thick walls and reinforced doors and windows.
• Your house catches and filters enough rainwater from the roof to provide all the water you need for yourself and your garden. All domestically-used graywater is harvested and re-used in the garden, and there is no blackwater because your poop is turned into compost by your composting toilet.
• Your garden and animals provide all the food you need, and your animals feed themselves from parts of your garden you don't eat.
• Your solar panels and wind turbines provide all the electricity you need and enough to sell back to the grid to pay your property taxes and the cost of internet access.
• You ride your bike for transportation.
• You live in a country with free universal health care like the UK.
• You send your children to public school.
• Anything that needs fixing you fix yourself using your skills, your power tools run from electricity you generate yourself, and repair parts that you acquire for free from Craigslist using your bicycle, or fabricate yourself from raw materials acquired in a similar manner.
• All electric lighting uses LEDs that will last for decades.
• When your electric system's batteries need replacing, you scavenge working ones from cars in the junkyard.

This kind of existence is a more modern version of exactly the kind of life led by the villagers in the African village I lived in as a child.

Besides the modernity, the other principal difference is that all the money you make from whatever job you feel like having goes right into your investment account, which eventually grows so large and produces so much income that you can purchase absolutely any modern convenience you want with cash because nothing else is eating away at the gains from your investments.

[clacy]

Another way to title this thread would be to call it "Abating Inflation Through Lowering Your Standard of Living"

[l82start]

most of those are pretty good! and line up with my personal wish/to-do list, only a few are unlikely to work, unrealistic or more trouble than they are worth, i would call the rest a higher standard of living not lower.

- riding a bike and living in a place with low hurdles for alternative house building are not compatible, a bike alone wont work well for country living, things are just to spread out
- public school is awful... it may cost more but investing in raising intelligent children is worth the money, much better than indoctrinated robots.
- i don't believe the LED's last a decade claim, maybe a bit longer in a properly designed, bran spanking new solar-wind powered house, but in typically wired houses they barely outlast filament bulbs.
- not positive about this one, but good functional solar wind power systems take good quality battery's to run well, stringing together old VW bus  batteries and hoping to have your needs covered. seems a bit like a hippie dream

as for the rest of your plan/dream i love it! i hope to have the same someday....

[Tortoise]

This sort of thing--increased self-reliance and figuring out ways to do more with less--is what people are eventually forced to do anyways as their standard of living is lowered by out-of-control inflation.

So I guess the distinction is now vs. later. Start becoming more self-reliant and resourceful now, before inflation becomes really bad, or play catch-up when economic necessity forces you to. In either case, it's simply a lowering of one's standard of living.

Some people are highly intelligent DIY junkies who can adapt pretty well to an eroded standard of living, but unfortunately most people aren't. For the masses, inflation simply steals their resources and reduces their material well-being.

[Rien]

But there's another way: you neutralize the effect of inflation on your monetary expenses by eliminating as many of them as possible.

You got it.
But then you will be called a "prepper" and potential domestic terrorist.

Regardless, this is what I am setting out to do. Starting with the house we recently bought (well, the transaction is not finalized yet, but there are no roadblocks anymore).

Btw: There are a few financial investments you can make to achieve a financial equivalent:
- Buy stocks in energy companies such that the dividends pay your energy bills.
- Same for water, food and taxes (the last would be bonds)

[Thomas Hoog]

some cultural differences:
we only have public schools
You rather be dead then visiting the health care in the UK
A bike is expensive
Somehow I'm very unpractical, just can't can't fix anything
But I do have 2 chickens, which provide me with 3 eggs in the week during spring and summer.

But I agree with the concept and I think we will take a turn in that direction.

[WildAboutHarry]

PS, interesting.

Your program also has the added benefit of tax reduction (paid-for house - no income needed to pay the mortgage; grow your own food - no income needed to buy food; etc., etc.).

Of course if enough people adopted this lifestyle governments would have to figure out new ways to tax.  Tax on imputed income, etc.  Oregon is apparently considering a mileage tax, since fuel efficient vehicles have reduced fuel tax revenues.

I do like the juxtaposition of "extreme example" and "public schools"

[Pointedstick]

I disagree with those who portray this as lowering your standard of living. In some ways yes, but in most ways no. I would far, far prefer to live in the kind of house I outlined than the kind of flimsy, flammable 2x4 construction McMansion that costs half a million dollars but at least has granite countertops and Viking appliances that seems to be all the rage these days. Doing with fewer bathrooms than bedrooms is only "lowering your standard of living" if your standard of living is absurdly inflated to begin with.

But the extreme example is extreme for a reason; even I wouldn't go that far. I'd prefer to keep my car and pay the roughly $100/mo it costs me on average. But $100/mo works out to only $30,000 in investments required to sustainably produce that kind of income forever. That's not so much money to accumulate, especially if you have so few other expenses that most of your income can go to increasing your investment portfolio.

And I forgot clothes; but using this framework you would buy a few high-quality outfits that look attractive with all the other clothes you own will last for years, which works out a very very low monthly cost. Two $70 pairs of pants that look great and last for 6 years cost only about $600 in investments to ensure a supply forever.

As for the batteries, if you're selling power back to the grid for a profit, the batteries only see use when there's a power outage.

[Pointedstick]

And as for the composting toilet, this thing really seems like a great example of a higher standard of living. Instead of receiving as input clean water that you have to pay for and outputting blackwater through the sewer system that you have to pay for, and requiring a complicated plumbing system to support it, a composting toilet can be entirely self-contained and outputs only compost that you can make beneficial use of.

Then again, my definition of "higher standard of living" tends to correlate more closely with "more efficient use of money and resources" rather than "more luxurious".

[l82start]

i think my definition of higher standard is similar to yours 

as for the batteries if they are just an emergency back up for short duration use during a power outage you might be OK cutting cost, but if you want off the grid potential, i suspect some kind of heavy duty, high durability, batteries like they put in boats would be necessary, since you would be relying on them to drain and re-charge every time the wind stops or the sun goes down... 

[dkalder]

Well, this is exactly the mental and practical framework presented extensively in:

http://www.amazon.com/Early-Retirement- ... 145360121X