Monday, November 3, 2008

Calculate Future Living Cost

I mention before that the Real Inflation you should care about is Your Own Inflation Rate, not those published by goverment or experts ... ( read here for old post )

In other to calculate future living cost, first you list down your living cost now.  The 4 basis of living standard are Cloth you wear, Food you eat, Place you stay in and Transport that brings you around.

Then determine your own inflation rate.

Lastly using the FV formula to calculate your future living cost.

PV - Present Value ie. \$570 x 12
i - interest rate ie. 3% or 0.03
n - number of years ie. 17 and 20
FV - Future Value, ie. the results I shared below
For exampe, using above figures, the cost of living for

17 years later is \$11,305.48
20 years later is \$12,353.80

instead of only \$6,840 a year today.

if you don't have calculator at hand, you can also use Rule of 72 to do a quick estimation in your head.

Anonymous said...

Hi, u didn't mention wat is PV, PMT, i and n...

Michael Tsen said...

thkx 4 d comment, will edit them soon

Anonymous said...

My dad who retired in the 1980s drew less than RM2K and able to bring out a family of 5 with car, house and even a dog and some cats

His pension and EPF would bear little indication against the cost of living of today if he is still alive.

Now, our dear new Finance Minister wants to lower employee portion of EPF to 8% from 11%, that will be hell to pay in decades time

The way to combat inflation is to save a lot, invest in property or quality equity, and as per Singapore senior citizens, continue to work after retirement age (and their retirement age is in the 60's unlike Malaysia which is 55 so there is about 10 years' worth of earning difference)

Another way is to move to lower cost area, e.g. work in KL, retire in Klang, Seremban or Ipoh ... or even Kuala Selangor, Port Dickson or Teluk Intan.

LWT

Michael Tsen said...

by the time we retire, may b klang is already a 'high cost' area, hee hee hee. My aim is at Sabah near Mt. Kinabalu :)

indeed there are many more aspects to retirement. calculating future living cost means one want to maintain 'current' life style.

however in reality, one's life style may tune down 'naturally' and not necessarily by force.

on the other hand, old folk home near KL has much better facilities than Sabah's ones ...

Calculating future living cost, however, is VERY APPLICABLE for education plan.

Anonymous said...

Something out of topic here about Finance, but remain related to the topic but from other perspective....... after all of these, assuming MONEY is important for everyone's future,

1) How do we Know how much we need in FUTURE till we die?

2) Can we really estimate the amount that we Need to survive? 50yrs later?

...If money is not the most important
3) Why do we need to make estimation Now for Future? Can we just eat anything we have on hand right now, happy go lucky till we die?

4) How important is Money?

Imagining u r going to throw [The Science Of Getting Rich] to me again and ask me to revise my homework :P

OoT

Michael Tsen said...

its like a path you are walking through now, you can walk backward. falling down a few times is quite fun actually. when you are ready to walk faster, you may want to face front of where you are walking toward.

you can look down on your feet while you walk. so that each step forward your feet will tell you if you hit a rock and step into a hole ... its also fun when you first try that ... when you want to walk faster, you may want to lift your head up to see the path in front of you ...

the further you can see your path, the more prepare you are in your walk.

if one is happy with walking backward or keep the eyesight on the ground, that is fine too ...

we don't live alone in this world, the path we are walking now has been walked many times. Some in front of us, some behind us. We can see what happened to them, to 'estimate' or decide how we want to walk it our way ...

Money is as important as how you are going to use it for.

read one of the old blog that money doesn't exist long time ago.

http://malaysiapersonalfinance.blogspot.com/2008/10/finance-big-bang-theory.html

Anonymous said...

The reply is great. Thanks! But unsatisfactory, probably cos I dont earn the money, thats the problem, I see it too :( *sigh*

"..Let a man take which course he will, he will sure be repent" - Scorates

Fear and Greed - Buffett

OoT