How Do Your Personal Finances Matchup with the CPI?

Say what you might about the Consumer Price Index (CPI), this measurement is what the government uses to measure consumer spending and to make economic decisions. Basically, the CPI is a survey of prices paid by urban consumers for a representative basket of goods and services.

A CPI report looks like this: (note this chart was generated in September 2011 using August 2011 data, changes may have occurred.)

What you learn from the CPI

By tracking your own personal spending and comparing it to the CPI you can determine areas where you may be spending too much. Of course, your personal situation may be different from the average consumer. In some cases, you cannot change your spending. For example, if you have ongoing health issues, your medical expenses could be greater than 6.5%. Or, maybe clothing just isn’t important to you, so you spend less than 3.7%.

Categorizing your spending can be enlightening. If you see that you spend much more on food and beverages than average, this could be
warning that you are spending too much. Comparing your spending to the average can help you identify areas where you could cut back on your spending and save money.

By paying attention to changes in the CPI you can prepare your personal spending for economic changes. When areas of the CPI are
increasing, you can determine how that might affect your personal budget. For example, if you see that education costs are increasing and you know that you will have college expenses, you can plan for that. If you are planning to buy a house or rent an apartment, then housing costs would be the area you would watch.

So, although you may know that comparing yourself to others isn’t usually a good thing, you can use the CPI to compare your own spending to that of the average American consumer.


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