FREE eBook
"15 Hacks to Reach FI/RE"

Retirement is too far away. Think Financial Independence instead. Get out of debt. Spend time with family. Travel the world. Work your dream job. Enter your email to get the eBook.

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit
The Cost of Living: How to Combat the Expense of Healthcare, Childcare & College

The Cost of Living: How to Combat the Expense of Healthcare, Childcare & College

Price changes of Consumer Goods with data from the US Bureau of Labor Statistics compiled by Mark J. Perry and published on aei.org.

 

The cost of living is going up and the chance of living is going down.

A few weeks I came across this chart on Marketwatch. The original creator is Mark Perry, economics professor at the University of Michigan using data from the U.S. Bureau of Labor Statistics. Perry's original blog post can be found here. It’s a startling graph and there’s a lot that we can interpret from it (I recommend you read the comments on the blog post), but of course, since I write from the perspective of Financial Independence, I want to put the FI spin on it.

First of all, it is ridiculous and sad that the services we need the most: education, childcare, healthcare, housing, shelter and food are the most expensive. Essentially the items that we need to survive and meet Maslow’s hierarchy of needs cost more than the extraneous wants and luxuries of a cellphone service, TV or cars. Secondly, judging from the current state of our society, this is not fair and definitely harming the future of our society. Lastly, if we continue to trend this way, many people are going to get left behind and struggle to meet basic needs. What does this mean for us in the FI community? It actually means that we are on the right track to re-think our current lifestyle now.

I've written about Lifestyle Inflation and it was normally in the context of the items in the wants categories. Based on this chart, these are deemed affordable and easier to get and plan for than the basic needs so we now have to flip that and focus on how to ensure the basic needs don't cost our lives.

This post contains affiliate links. See Disclosures for details.

 
 

Healthcare Services

I don't think many of us really understand the true costs of medical services in the U.S. Sadly, due to the way our healthcare works, we may never will, which is unfortunate, but the sad reality though is that we will all depend on these services at one point or another. It is important then that we start planning ahead for it.

I know when we are young, we think we are invisible, but it's actually around this time that we have to start taking on healthy habits and understanding how to hack our way to better health. It's crazy that a lot of the conveniences that we are used to, that based on this graph is more affordable are actually the things that could lead to more health problems in the future.

In the FI community, there's a lot of talk about contributing to an HSA (Health Savings Account) and I believe this continues to be a great step in combating the rising costs of healthcare. The HSA allows you to set money aside for health expenses in a tax fee account. Funds are normally taken pre-tax from your paycheck which provides greater advantages as it lowers your current taxable income. Part of life is to really plan ahead. While we can't predict the future, we can work towards living healthier lives and reducing the costs in the end.

 
 

Childcare

When we talk about Financial Independence, we somehow always go back to the relationship of time and money. Whose time are we sacrificing, what memories are we missing when we are too busy earning money to buy the thing that we don't need? There's a lot of discussion about the growing expense of childcare, but also what women have to give up to have children. Knowing that the cost of childcare is increasing, we have to start planning ahead again.

Having children does not have to be expensive. If we start living an unconventional life and stop getting pulled in to the marketing of modern motherhood or fatherhood, I think we can all combat the costs of raising children. We also have to start instilling in future mothers and fathers that there's an opportunity to start saving for childcare even before children are in the picture. The things we buy today will cost us time in the future. Instead of a closet full of clothes in our 20's or a house full of the latest gadgets, we should be weary of what we spend our hard earned money on and instead save so that we can use that compound growth to buy us time to stay at home with our kids in the future. Opportunity costs is everywhere, we just have to recognize and do something about it.

 
 

College Tuition and Textbooks

One of the things I love about the FIRE community is the desire to teach others and teach the next generation about FI living. I'm excited to be learning so much from the FI community about how to reduce college costs in the future. While we don't have kids yet, many of these things have been planted in my head already. I wish I had known a lot of these FIRE Hacks early on so that I could have used them for myself.

One of the things that the FIRE community is highlighting is the real cost of education. Not only the student loans that come out of it, but the costs of a life not well lived because we continue to pay interest for years for a 4 year degree. Education is important, but it doesn't have to cost tens and thousands of dollars.

Whether you are investing in a 529 plan today or finding obscure scholarships or preparing kids to attend a community college or attending online classes via Skillshare or CreativeLive or Pluralsight, getting an education doesn't need to mean being in debt for years after. We live in an age of information, we need to be strategic about how and where we get our knowledge. We also need to be cognizant of payoff and opportunity cost so that we are maximizing our time and money.

 

Conclusion

FI is about being smart with money early so that we can live wisely. If we live conventionally, we will be victims of the rising costs of these basic needs, but if we live with the FI mindset, we can combat the growth of these expenses before it takes over our lives.

What do you think? How did you interpret this graph? Did you get a chance to read the comments on the original blog post?

 
 The Cost of Living: How to combat the high costs of healthcare, childcare and college on the Journey to Financial Independence.

The Cost of Living: How to combat the high costs of healthcare, childcare and college on the Journey to Financial Independence.

Should You Pay Off Debt or Invest? FIRE Logic

Should You Pay Off Debt or Invest? FIRE Logic

The End of An Era: Goodbye Marriage Penalty

The End of An Era: Goodbye Marriage Penalty