Financial Strategy
January 27, 2022

How to Calculate your Personal Inflation Rate

Open the finance section of any newspaper or tune into the evening news, and the word inflation is inescapable. In the past year, we have seen fuel prices go up, electricity bills rising as well as an increase in the price of produce and other food items. 

While we sit and lament about how the economy is suffering, it is also important to assess how this affects you. Inflation does not affect every individual in the same way, it all depends on your spending habits. And this is why it is important to know what your personal inflation rate is.

What is a personal inflation rate?

Your personal inflation rate measures the change in prices based on your personal expenses, as opposed to the national average. It gives you a clear picture of how much more you are spending every year.

Your personal inflation rate is not the same as what is reported in the news for a variety of reasons:

If you choose to spend on more expensive brands and products, then your personal inflation rate will be higher than the national average.

Conversely, if you spend on less expensive brands and products, then your personal inflation rate will be less than the national average. SImple, right?

How can I calculate my inflation rate?

Track your spending. You can use apps like You Need a Budget or Africa’s Pocket’s budgeting tool or you can simply do this on a spreadsheet.

The easiest way to do this is total up your expenses for the year and compare them to last year’s expenses:

(2022 expenses - 2021 expenses) / 2021 expenses  * 100

For example:

- 2022 expenses = KES 2,000,000

- 2021 expenses = KES 1,650,000

- Do the math = (2,000,000-1,650,000)/1,650,000 *100

Personal inflation rate = 21.21%

This is the most basic way to calculate this. However, oftentimes we make unique large expenses one particular year that we are not likely to make the next year, such as buying a car.

There are two ways to manage this:

  1. Do not include such expenses in your calculation. 
  2. Spread out this expense over a course of time. In the car example, if you expect to use your car for the next 10 years, then add 10% of the cost to your expenses every year. So for instance, if the car cost you KES 500K, then put in KES 50K as a line item in your expenses for the next ten years.

You can choose which option you prefer.

What next?

You are probably wondering, what’s the point of doing all this math every year? How does this benefit me?

There are three possible ways in which you can interpret this data:

1. Do nothing:

You can look at these numbers and decide that all of this is too overwhelming for you and continue to live your life as normal and, very possibly, suffer the consequences later on in life. Future you can handle it, right?

Warning: We do not recommend this.

2. Start making adjustments to your expenses:

If your personal inflation rate is over the national average, this is your wake up call to start evaluating where you are spending your money. You need to start cutting out unnecessary expenses (you don’t need a Java coffee every day guys) as well as switch to cheaper alternatives (buy local!). If you are not sure where to get started, read our tips on how to make a rock solid budget.

3. Invest, invest, invest:

We cannot emphasize this more. When you save your money in your bank account or “under your mattress” it literally loses value over time. We have spent this whole article talking about that. You need to make sure your money grows, because, let’s be real, inflation is definitely going to grow.

Look into government bonds, invest in land like your ancestors or simply save your money in a fund that gives you a good interest rate. If you are looking for the latter, Koa is your best option!

We offer an interest rate of up to 10% per annum and you only need 100 bob to start saving! All you need is a smartphone and you can start saving and getting a return on your money right away. 

So, what are you waiting for? Download Koa today and stay ahead of inflation in 2022!