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Financial Goals - Do you account for inflation?


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Hiya,

If I have a 5 year goal of replacing my £5K p/m net income from my current job with property investing, should I account for inflation in 5 years time to be more realistic?

ie assuming avg inflation of 2% p/a, should I actually should be building a plan for c. £5,500 p/m rather than £5/

Also, if building out a model of how to get there, should you account for inflation in all your costs over the years?

Just interested in how others plan/model when setting your goals with an eye on being accurate/specific as possible :)

Cheers

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Depends on how accurate you need to be. Either you need to factor in inflation into everything or just ignore as 5 years is not that long a timescale for the long term. I tend to do a quick calc without inflation and then make some assumptions on top. Others have a complex spreadsheet with lots of extra detail to get a very precise figure. Also comes down to if there is a buffer in your 5k figure or if its a minimum needed.. 

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On 2/14/2021 at 1:57 PM, tomo222 said:

 

If I have a 5 year goal of replacing my £5K p/m net income from my current job with property investing, should I account for inflation in 5 years time to be more realistic?

ie assuming avg inflation of 2% p/a, should I actually should be building a plan for c. £5,500 p/m rather than £5/

Also, if building out a model of how to get there, should you account for inflation in all your costs over the years?

 

I don't think you need to go into that much detail. If you can survive on £5k per month now, you can probably survive on £5k per month is 5 years
 

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I personally would account for inflation in considering any investment, without it you build in greater inaccuracy.  RPI at ~1.7 lands you at ~500/mo or 6000/an (as you stated).  

6000/an is a typical BTL. Would anyone be comfortable with accuracy of +/- one rental house ? Seems a stretch to say a whole BTL income is incidental.  

In practice the real question is do you need 5000 or 5500/mo with a new lifestyle, is it the right benchmark to be chasing. 

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2 hours ago, alastairkennedy said:

I personally would account for inflation in considering any investment, without it you build in greater inaccuracy.  RPI at ~1.7 lands you at ~500/mo or 6000/an (as you stated).  

6000/an is a typical BTL. Would anyone be comfortable with accuracy of +/- one rental house ? Seems a stretch to say a whole BTL income is incidental.  

In practice the real question is do you need 5000 or 5500/mo with a new lifestyle, is it the right benchmark to be chasing. 

Thanks Alistair! I would agree with your comments. With the latter comment, are you hinting that keeping the same level of income is perhaps not necessary? Interested to know why you think that if so, just in general principle :)  I can understand for example transports costs might not be needed as not travelling to work, but other than that struggling really to see where extra savings come? Cheers

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1 minute ago, tomo222 said:

Thanks Alistair! I would agree with your comments. With the latter comment, are you hinting that keeping the same level of income is perhaps not necessary? Interested to know why you think that if so, just in general principle :)  I can understand for example transports costs might not be needed as not travelling to work, but other than that struggling really to see where extra savings come? Cheers

Yes, I’m not sure what field you work in currently, but costs in the day job may differ from those full time in property, including what you can put through the business time/receipts once you are in it full time (may not be relevant to you). 

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I found that roughly 50% of my gross employers salary was actually paid to my bank due to tax/benefits/pension/etc - with a LTD I am finding I can get over 80% of the gross by being smart with how I setup etc eg bought myself an electric car through the company and save 15k

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