1 Jacob Adjusted For Inflation (JAFI)

[wolf]

I created a table with 1 Jacob Adjusted For Inflation (JAFI), based on Bankai's and Jacob's input and the discussion here (see also quotes below).
It is based on $7,000 in the year 2007 and is adjusted for inflation with CPI in USA.
I used the US Inflation Calculator.

YEAR JAFI
2007 $7,000
2008 $7,269
2009 $7,243
2010 $7,362
2011 $7,594
2012 $7,751
2013 $7,865
2014 $7,992
2015 $8,002
2016 $8,103
2017 $8,275
2018 $8,432
2019 $8,631
2020 $8,738
2021 $9,413

I'm wondering if a jacob should not be adjusted for inflation. After all, once expenses are optimised, it's quite difficult to keep cutting them further year after year (the lower the spending, the higher the proportion of unoptimizable expenses (i.e. taxed usually only go higher)). Especially in the long-term. One could've probably lived quite comfortably for $700 back in 1918 (equivalent to 1.8 today's jacob). Not so much nowadays.

Checking online inflation calcs, 2008's jacob has inflated to around $8200 today (about 17%). Should we start using 'IAJ' (inflation adjusted jacob) or 'JAFI' (jacob adjusted for inflation) or something similar?

Another benefit would be that 'the dream' (spending within 1 jacob) would not become more and more elusive and unattainable as the time passes. It's super hard as it is, even for people on this forum, and devaluating the jacob further would only discourage new converts.

Where would you say should the reference point be? The year you first divulged your spending level on the blog? 2008 was a stab in the dark on my part, but I imagine this wasn't far off - 2006-2007 maybe?

Lets just do Dec 4th 2007 when the blog started.

[Seppia]

Great stuff thanks wolf!

I'm always amazed when I look at the numbers on your journal btw, keep being awesome!

[Jean]

The compétitive me likes being at .7 jafi

[2Birds1Stone]

-_- 2.3 JAFI's here, with a goal to get <2 by May of 2019.

[Lucky C]

A better way to adjust for inflation, whether for Jacob or yourself, would be to weigh the CPI components differently than they are weighed for the CPI index. After all, the C in CPI stands for Consumer, which Jacob is not.

Since we spend very differently that the average household, and inflation is usually dominated by certain categories, inflation is a lot different for us. I created my own price index a while ago by weighing the categories differently and had found it was lower than the actual CPI inflation. Makes sense, since rapidly increasing education and health care costs are not impacting me at this stage in my life. Of course then you run into the complication of the CPI weights having to change as you go through different stages of life and living situations, plus local differences (housing market / property taxes).

More examples why the weighting may be way off: the CPI index uses 14% for food and beverages but for Jacob and many rest of us it's >20%. Recreation is about 6% but for many of us it is close to zero or we potentially produce incomes from hobbies in place of consuming "recreation". Housing is the biggest category, which is pretty universal, but the average household paying rent or a mortgage is a lot different than RVing, or buying a house with cash in which case you just have to worry about property taxes, maintenance, and utilities.

https://www.advisorperspectives.com/dsh ... rice-index

[jennypenny]

I was wondering about using standard inflations rates for ERE lifestyles myself. It would have to weighted differently as Lucky C said. I'd love to come up with a unit of measure that was something like ERE CPI vs. investment returns ... a weighted SWR specifically for ERE lifestyles (not sure I'm saying that correctly). That would be a better gage of how robust an ERE plan is.

[wolf]

Great stuff thanks wolf!

Thank you Seppia! Bankai had the initial idea. I did the work. Thanks to him too.
Thank you Bankai

I'm currently at 1.08 JAFI, assumed I had to pay health insurance like I were RE.
Of course currency exchange rates between EURO-USD influences this.
Nevertheless my goal is <1.00 JAFI.

[OTCW]

My bronze plan health insurance was $5,900 a year before I went back to work full time and got on my employer's plan. Lowest premium I could get. No way I could be FI and live on one Jacob.

[C40]

Well, right now you could.

With an income of around $17,000, my (~$400/month) health insurance cost is 100% subsidized. Thanks Obama.

[Bankai]

Yeah, it's probably very easy to make this calculation very complicated. In the US alone you could get a different number for each state based on different rates of real estate inflation alone. Then split it further by RE type, rural or urban area, rent or buy etc. And then converting it to other currencies would only complicate matters further.

What I had in mind was rather quick and dirty way to adjust for inflation rather than coming up with a precise formula. I guess one could work out more precise numbers by taking $7000 in 2008 as the reference point and then working back one own's mix of expenses for the last 10 years.

Alternatively, one could review a sample of journals and work out what the average mix of expenses is for ERE forum members. And then adjust each section for inflation.

For practical purposes, applying CPI seems sufficient if the goal is to give one a rough idea of what's possible or how one is doing against the top optimizers.

[Bankai]

My bronze plan health insurance was $5,900 a year before I went back to work full time and got on my employer's plan. Lowest premium I could get. No way I could be FI and live on one Jacob.

Only if you presume the US is the only possible retirement destination.

[CS]

@C40 - you must be in a non-medicare extended state - is this correct? I think I saw where you registered yourself somewhere (South Dakota?) but don't have the energy to try to track that down.

In Minnesota, you have to have 2 times the federal poverty level for credits. Otherwise, you get thrown into the state medical system that can, at certain ages brackets, charge your estate with liens for the cost of your healthcare. These have been executed as liens against property that cannot be discharged until the house is sold. So income of 25k for a single person = free healthcare, income of 17k = 10k bill per annum. I think this is only for ages 55-65, but I'd have to go check.

Anyway, people need to be diligent in checking their local state laws!

[unemployable]

That would be called a "real Jacob", as opposed to a "nominal Jacob" which stays at $7000.

[Stahlmann]

Pssst! I don't want to destroy your tree house club, but there are many people in the second and third world who can dream of such frivolous spending!

[Laura Ingalls]

@C40 - you must be in a non-medicare extended state - is this correct? I think I saw where you registered yourself somewhere (South Dakota?) but don't have the energy to try to track that down.

In Minnesota, you have to have 2 times the federal poverty level for credits. Otherwise, you get thrown into the state medical system that can, at certain ages brackets, charge your estate with liens for the cost of your healthcare. These have been executed as liens against property that cannot be discharged until the house is sold. So income of 25k for a single person = free healthcare, income of 17k = 10k bill per annum. I think this is only for ages 55-65, but I'd have to go check.

Anyway, people need to be diligent in checking their local state laws!

Are you sure estate recovering in MN applies for regular care or just folks that end up in Medicaid financed LTC?

[CS]

It looked like regular folks. They were shocked. At least one local congress person wanted to change the rules to eliminate that, but I'm not sure if anything ever happened. https://www.twincities.com/2016/02/15/m ... -care-act/

[7Wannabe5]

Pssst! I don't want to destroy your tree house club, but here are many people in the second and third world who can dream of such frivolous spending!

True, but the global gap is narrowing. Approximately half the world's population now earns/spends more than 1/2 Jacob per capita. Also, many of them don't have to deal with zoning codes that prohibit living in an off-grid camper , and they can likely hire somebody for far below U.S. minimum wage to stir their pot of lentils.

[Bankai]

Pssst! I don't want to destroy your tree house club, but there are many people in the second and third world who can dream of such frivolous spending!

I wouldn't call expenses at the level of 25% of net average wage frivolous. I also think it's possible in some non-western countries as well - the percentages should work roughly the same (60-80% housing & bills, 10-20% food, 0-20% everything else). I.e. in Poland it's possible to live on 25% of net average wage (about 900 pln). Not pleasant, but possible.

[jacob]

Speaking of 1 jacob vis-a-vis the world's total global population, I once calculated that the consumption of the world's inventory of humans would be sustainable if everybody consumed no more than about 1.3 jacob each. That was back in the early 2000s when there were 6e9 humans and not 7.6e9 humans. So that's a big part of where the 1 jacob came about. I was already spending less, but I've always thought of it as a ceiling insofar what I could morally do.

The number has obviously dropped a bit in real terms since then now since there are now more people. However, it's quite/viscerally clear to me that insofar I start spending more than this ... it means that someone else will eventually be forced to spend less. Either future generations here or far-away people in poorer areas and especially both.

Going beyond my allotment makes me feel like an a*-hole. Especially when I have all the power. I try hard not to.
I totally grok the implications and the responsibility that follows from that.

Therein lies the failure of present/local democracy...

[Bankai]

@jacob

Playing devil's advocate here. Why is it immoral to benefit by consuming more (at the cost of another human who is forced to consume less), but it's moral to benefit by owning shares in a tobacco company (at the cost of another human who might get cancer)?