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Saturday, November 22, 2014

Extra benefit to practice minimalism

One benefit of minimalism that I haven't heard people talk about is that minimalism lessens the effect that you feel from inflation.

Well, theoretically anyway. In practice, you can save money just by not buying stuff that you don't need or buy cheaper substitutes.

Everything about this next example is completely theoretical, it is not a reflection of how the real world actually works.

Andrew's cost of living is $15,000.
Boco's cost of living is $25,000.

For the year of 2015, we will assume the inflation rate is 3% (not unreasonable).

Let's assume that the price of every single thing increases by 3% (not how the world works but this is just theoretical).

Assuming that Andrew and Boco bought all the same stuff for 2015 as they did in 2014 (also not how the world works), both Andrew and Boco's expenses will increase by 3%.

Andrew's cost of living is now $15,450.
Boco's cost of living is now $25,750.

In this case Boco's cost of living increased $300 more than Andrew's did.

This example only looks at cost, It does not take into account the money that Andrew or Boco make. If the cost of everything in 2015 increased by 3% then the cost of Andrew and Boco's labor would increase by 3% and theoretically, their salaries should increase by 3%. If this is the case, this would negate the effect felt by inflation.

However, if Andrew and Boco's salaries do not increase in 2015, Boco feels the effect of inflation worse than Andrew does.

In a more extreme example, let's throw Charlie into the mix.

His cost of living is $40,000.

Making all the same theoretical assumptions from above, Charlie feels inflation worse.

Due to a 3% increase of inflation in 2015, his cost of living for 2015 is now $41,200.
Charlies cost of living increased $750 more than Andrew's.

To conclude this example, having to buy less stuff will make you less vulnerable to inflation compared to someone who has to buy more stuff.


Now back to the real world.

As a response to higher prices, the easiest way to save money is to just not buy stuff that you don't need. If you would like to buy the next new tablet or cell phone, think hard if it is really worth the couple hundred bucks.

The second way to save money is to find a cheaper substitute to what you already buy. If absolutely need a new electronic, don't buy the top of the line product but instead buy the cheapest one that suits your needs.

Both of these methods will affect your finances much more than inflation.


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