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Remember this next time you get your yearly review/raise. 4.2% is what you need to stay even, anything less is a pay cut.
by bluGill 5mo ago
Remember this next time you get your yearly review/raise. 4.2% is what you need to stay even, anything less is a pay cut.
- furyofantares 5mo agoMany people here make more than they spend, and this is simply inaccurate when that's the case. edit: I've explained how this works in a reply below.
- pishpash 5mo agoNo. What isn't spent now is future spending. You are still getting less.
- jayd16 5mo agoIt's still a cut in purchasing power even if you aren't hurting. But if you don't mind, I'll take 4.2% from your pay.
- bauldursdev 5mo agoNo, it's like, if you could buy 100 things before, but you can only buy 96 things now, then you have accumulated less value :D
- dag100 5mo agoHow is it inaccurate? If I only care about buying apples, and apples get 10% more expensive, and my salary only increases by 5%, then I can't buy as many apples as I could have before. How many apples I do actually buy in the end is irrelevant to the calculation.
- sowbug 5mo agoThe person you're replying to erroneously interpreted "stay even" as "avoid going into debt," instead of your income's purchasing power remaining constant.
- furyofantares 5mo agoConsumer price index is about consumer goods. This is why tarrifs and such are considered regressive - they hit people harder the less money they have because a larger percentage of their spending is consumer goods. If I invest half my income and spend half my income, and the prices of goods goes up 4.2% and my income goes up 4.2%, then I've made progress; I'm now investing more than half my income, because the half of my income I was spending has stayed even and the half I was investing has increased.
- dag100 5mo ago> If I invest half my income and spend half my income, and the prices of goods goes up 4.2% and my income goes up 4.2%, then I've made progress; I'm now investing more than half my income, because the half of my income I was spending has stayed even and the half I was investing has increased. Let's say your income is $100. You spend $50 and invest $50. The prices of goods goes up 4.2%, so to keep your current living standards, you must now spend $51.20. Your income increases by 4.2% to $104.20. After expenditures, you now have $51.20, or exactly half your income, to invest. So you haven't made any progress. And investing $50 now is equivalent to investing $47.98 before in terms of what you could have bought instead of investing.
- furyofantares 5mo agoOh yeah, oops, thank you. (Btw 52.10 not 51.20, but yes, half of 104.20).
- ncr100 5mo agoI disagree. "Money" has many meanings, absolute and relative. Receiving "market" compensation trumps real-world expenses, since the market for one's labor is a different market than the real-world expenses.
- thewebguyd 5mo agoNot necessarily, depends on the distribution of your own expenses. If you deviate from the average urban household (lets say, you have a particularly long commute or your car isn't as fuel efficient as the average. Look at the increase on fuel prices, 40.5%!). If you're at $5,000/month, a 4.2% raise puts you at $5,210. If you're spending $600/month on gas (not unreasonable for someone that drives an SUV and lives in the suburbs instead of in the urban core), you still come out behind.
- lazide 5mo agoDon’t forget the obvious ‘finger on the scale’ influence from the administration too.
- SteveNuts 5mo agoWhy can't we just water down the gasoline? /s
- kevin_thibedeau 5mo agoThat's what E15 is for.
- preg_match 5mo agoHave the American people just tried cutting a whole in the car floor and flintstoning it? Yabba dabba the DOW is up people!
- TuringNYC 5mo ago>> If you're at $5,000/month, a 4.2% raise puts you at $5,210. If you're spending $600/month on gas (not unreasonable for someone that drives an SUV and lives in the suburbs instead of in the urban core), you still come out behind. This is the problem with people treat CPI as some word from the heavens...it is not. CPI is a highly constructed figure which conveniently includes/excludes things and is really more a floor of what the inflation is. Anyone living in the real world knows experienced inflation is way higher.
- paulddraper 5mo agoAlso, any asset that isn’t appreciating at least 4.2% is losing value. Ah…inflation.
- frollogaston 5mo agoAnd you're still taxed on the "gain"
- paulddraper 5mo agoAnd now we see the picture come together.
- grassfedgeek 5mo agoThe solution is Treasury Inflation Protected Securities (TIPS). You do have to pay taxes on the inflation adjustment (OID income). As long as the interest (after taxes) is higher than taxes on inflation adjustment you're good.
- fhdkweig 5mo agoDon't forget the $10,000 annual limit of purchases. If you want to go heavy into TIPS, you can hit that limit pretty quick.
- mrtksn 5mo agoIt means you already had the paycut, you need to have at least %4.2 rise + reimbursement to make even. In high inflation countries you often get a revision every 2-3 months and you get a rise that is higher than the official inflation, as a result this solidifies the inflation and boosts the economy as everyone immediately buys whatever they can before it becomes more expensive. It's a vicious cycle.
- sleight42 5mo agoArgentina, for example. Coworkers there told me about this. Madness.
- NewJazz 5mo agoYou and your employer should consider future expected inflation at the time of negotiation. You don't need a true up in that case to "break even!.
- mrtksn 5mo agoIRL most of the time there's no negotiation, you find out your updated salary when the money hits the bank.
- NewJazz 5mo agoAt initial employment there is salary negotiation. Each COLA then automatically inherits whatever assumptions were baked into the starting number.
- mitthrowaway2 5mo agoAnd hopefully the other candidates applying for the position have similar inflation expectations to your own!
- foobarian 5mo agoReminds me of stories from ex-Yu during high inflation periods (e.g. yearly doubling; not counting periods when there were runaway spikes of almost daily doubling) when people would go to remote areas where shops didn't yet get the updated prices from headquarters and basically walked away with a bunch of near free stuff.
- toasty228 5mo agoMuch more since the numbers are cooked anyways. Car model N cost 10k, and car model N+1 costs 15k, if N+1 has 2 more airbags, one more gear, a keyless starter it will be counted way under 50% inflation, even though you pay 50% more. Most of the average joe's money is spent on housing + food + energy these things are all way above the calculated """average""" inflation
- dehrmann 5mo agoThey're not necessarily "cooked," (but they certainly can be). Inflation is genuinely hard to calculate since it's different for everyone, goods and services purchased drift over time, and as you mentioned, that exact good also changes over time. CPI (and others) are more useful in a MoM or YoY context. At 10 years, it's better viewed as best guess cost of typical living rather than an economic indicator comparing apples and oranges. > housing This is actually the hardest to get right because it's the largest, and 2/3 of Americans own homes, so part of their costs are fixed.
- jhallenworld 5mo agoNo it's cooked. For high tech items, they assume that improved technology means you are getting more for your money even if the price goes up, so they discount it. It's true that you get more for your money, but it ignores threshold effects, like you just can't buy an equivalent phone for $10 even if todays phone's are 200x better. Then there's the "owner's equivalent rent" BS and this is 25% of CPI. It answers the question "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished, and without utilities?" It assumes rental price and housing costs are somehow linked when in reality asset prices have far outstripped rent.
- littlexsparkee 5mo agowhy should the asset prices matter in OER? the aim is understanding cost. BLS no longer questions homeowners but samples local rents to estimate OER since homeowners could've been wrong in their guess. of course, someone may have locked in a low interest rate so their expense is overstated. counterargument is that you are consuming a more valuable service by occupying the unit even though market rent exceeds your costs so it doesn't matter if your cost is assumed to be the market rent. note there is a 6-month sampling lag of rents, which doesn't help the perception gap in the inflation figures.
- JumpCrisscross 5mo ago> 4.2% is what you need to stay even On average, nationally. Look up your state or metropolitan-area CPI. Or better yet, track your actual expenses and project forward.
- bluGill 5mo agoTrue, but how inflation affects each person is different. This isn't a good measure, but it is the best we have, and usually close enough to the truth.
- deleted 5mo ago[deleted]
- sokoloff 5mo agoI agree it’s not a perfect measure, but I conclude “it is the best we have, and usually close enough to the truth” makes it a good measure.
- DonsDiscountGas 5mo agoA conversation with your boss about a COLA raise really shouldn't include your own personal finances. "I just bought a house" is not a good reason for a raise; "prices in our area have increased" is a much better one
- onlyrealcuzzo 5mo agoTypically, you need a little more to make up for the difference in how much more taxes you pay at the marginal end vs the average for your total income... The median earner with a standard deduction would need a ~4.7% raise to stay even... "Inflation" is also increasingly distributed unevenly. The top 10% continues to make up a larger and larger portion of spending. It is entirely possible for ~4.2% inflation to be substantially higher (or lower) for the median household than the overall reported number.
- madcaptenor 5mo agoTax brackets are also inflation-adjusted, so shouldn't that cancel out?
- nothercastle 5mo agoNo it pushes you into a higher tax bracket earlier so also acts as a tax increase
- kennywinker 5mo agoI think the point is the tax brackets are supposed to be inflation-adjusted. So all the brackets go up 4.2% too. Idk if the implementation details make this actually work out 1:1 but that’s the idea.
- madcaptenor 5mo agoThat's what I was thinking.
- khuey 5mo agoMost of the relevant numbers in the American tax code are inflation adjusted, but not all of them. The biggest ones for people on this website are probably the value of the Child Tax Credit and the thresholds at which the Net Investment Income Tax/Additional Medicare Tax kick in.
- VirusNewbie 5mo agoThis is why it's important to get paid in stock. I get an automatic extra 100k a year if inflation runs hot!
- twoodfin 5mo agoWhat advantages does that have over taking your paycheck 100% in cash and investing in index funds?
- sokoloff 5mo agoIn most cases, you are granted a notional dollar amount that is immediately turned into a concrete and fixed number of shares that then vest over the next 4 years. Then, any share price appreciation on the shares is captured by you at vesting, rather than being paid in cash (the value of which has been inflated away) and then purchasing shares/index that has risen in the last 1-4 years. If you are paid in cash, you will be buying fewer shares per dollar (and per year) rather than getting the same number.
- twoodfin 5mo agoRight, but cash compensation could be structured the same way, minus whatever would be settled on for the retention value to the employer of the vesting schedule. I get your point. The value of stock isn’t that it’s stock per se, but rather that it’s inflation-resistant even when illiquid.
- VirusNewbie 5mo agoIt's optionality that only has an upside financially, while the downside is just having to do more interviews. Let's say you're worth 300k on the open market as a senior software engineer. If you get a job that pays 200k a year + 400k in stock over four years, you're making ~300k. Except if after the first year, the stock goes up 30%, you're making 330k the second year + whatever cash raise you get. Then if it goes up another 10%, and so on... etc. If, however the stock falls after the first year, presumably you can go out and find another 300k a year job at a different company.
- bilsbie 5mo agoMost employers in the US don’t realize this and act like cost of living adjustments are major rewards if they do them at all.
- SirMaster 5mo agoThis never made sense to me. Doesn't this assume you are spending ALL your income though? If I make 100K and get a 3% increase, that's $3000 more. But if I only spend 30K to live, and my living expenses go up 5%, that's only a $1500 increase to my living expenses while I earned $3000 more that year. So how is that a pay cut if I actually have even more money left over that basically just goes into my investment account then.
- Bilal_io 5mo agoIt's about the worth of what I am receiving from my employer and nothing to do with spending it. If John makes $100k and lives on $10k, then cost of living increases by 100%. I believe John should be paid $200k, and according to you his salary should go to $110k.
- bluGill 5mo ago> Doesn't this assume you are spending ALL your income though? Why wouldn't you be? You will die, and the vast majority of religions (including atheism) don't let you take it with you. Sure there is some saving for a rainy day or retirement. However why are you earning more than that? If you need a job for social reasons only there are plenty of volunteer jobs that can provide that.
- pibaker 5mo agoDo you have children?
- SirMaster 5mo agoI save for retirement yes. I only spend about 30% of my income to live and other other 70% I save for retirement. I don't feel like I'm being cheap or limiting myself. I have hobbies that I enjoy, computers, home theater, pickleball, scuba diving, hiking, biking. I travel a lot for fun, backpacking and trips around the world to see cool cities, hike mountains and experience different cultures. I don't find my job particularly demanding or stressful, it's flexible, the people I work with are nice. I just spend what I feel I need to spend to do what I want to enjoy myself and the rest I put in investments. I know I can't take it with me, but it just means I will be able to retire that much sooner. I get a 3% raise every year as the default, aside from promotions and such, and the amount it gains me is about 3x higher than my cost of living increases have been these past years, so it really does not feel like I am making less. I am living my same life that I enjoy and saving a bit more and more each year.