If You Think It Costs A lot Today, Check Out These 2040 Estimates
With inflation north of 5%, it’s definitely not going to get any cheaper. While it’s better than +8% in 2022, it will be harder to maintain through to 2023. Now that people are grasping the cost of inflation in 2021, just know that 2040 will cost even more money.
How much money?
Based on the Bureau of Labor and Statistics 2020 survey, the average US household spent $61,334. The bulk of which, 64% went to Housing, Transportation, and Food (see Table #2).
However, based on the rate of inflation at 2.5% by 2040, this will balloon to $100,503 per year. That’s $8,375 per month.
Yes, over $100K
If you know your expenses, check out how much it would be for you (see Table #1)
Table of Contents
Table #1. Average US Household Expenditures by 2040
| If Your Annual Expense in 2020… | By 2040, It might Inflate to… |
| $30,000 | $49,158 |
| $45,000 | $73,738 |
| $60,000 | $98,317 |
| $75,000 | $122,896 |
| $88,000 | $144,198 |
| $100,000 | $163,862 |
By this time, you should be wondering what TF is inflation.
As a person who barely received A- in micro and macroeconomics from a university; I can barely tell you what it means.
But a Google search led me to Investopedia which says that “Inflation is a measure of the rate of rising prices of goods and services in an economy. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.”
Let me translate – the more a society matures and wants specific items; the more those items can be sold for, especially if demand is more than the supply available. Let’s say you live in DC and want to buy the 3-bedroom home that just popped up on the market for $599k. If everyone else wants it, especially if it is in limited supply and refurbished with all the HGTV stuff; guess what, it triggers a bidding war that might push the price to $750k.
I know it’s messed up but that’s how that works. kinda sorta? Let’s dive into some more numbers.
Table #2. Average US Household Expenditures for select expenses for 2020
| Categories | Average Monthly Cost | Average Annual Cost |
| Food at Home | $412 | $4,942 |
| Food away from Home | $198 | $2,375 |
| Housing | $1,784 | $21,409 |
| Apparel and Services | $120 | $1,434 |
| Transportation | $819 | $9,826 |
| Healthcare | $431 | $5,177 |
| Entertainment | $243 | $2,912 |
| Personal Care | $54 | $646 |
| Education | $106 | $1,271 |
| Vices i.e. Alcohol and Smoking | $66 | $793 |
| Savings and Long Term Investments | $666 | $7,996 |
So TNFG, what are the Inflation Estimates?
Well, it’s not that good.
Based on the numbers the average 35-44 year old spends close to $58,784 in 2019 which basically means that most millennials are creeping up on that $61,334 average household spending fast.
So with those numbers and using my trusty inflation calculator set at 2.5% for 20 years, here’s the crystal ball prediction (see table #3).
Table #3. Average US Household Expenditures by 2040
| Select Categories | Future Average Monthly Cost | Future Average Annual Cost |
| Food at Home | $675 | $8,098 |
| Food away from Home | $324 | $3,892 |
| Housing | $2,923 | $35,081 |
| Transportation | $1,342 | $16,101 |
| Healthcare | $707 | $8,483 |
| Entertainment | $398 | $4,772 |
| Vices i.e. Alcohol and Smoking | $108 | $1,299 |
How to Fight Inflation!
To be quite honest you can’t fight inflation head-on.
Though government uses various forms of quantitative easing and investor shift with equities that do best during these times, the average person is left to figure it out on their own.
The picture to the right chronicles easy steps to get your financial affairs in order.
The best strategy is still the same: decrease your consumption, make money, and invest in vehicles that make you more than inflation will.
No, I’m not talking about cars when I say vehicles. I mean assets, equities, and cash flow. You really need to start setting up how your household operates today.
Secondly, remember that the whole 64% is on housing, transportation, and food. Yeah, you should cap that at 38%. Skip the Pumpkin Spice Latte; you need to reallocate quickly.
It’s never gotten cheaper in history, so make sure you are up on the financial game. And cut wasteful spending, I can’t say it enough.
How to Improve by 2040?
First and foremost, create a plan for your home. Start budgeting with the goal of investing for the future:
- Use tax-efficient assets if you have access such as 401k, 403b, or 457b at work. Double-check your allocations because if it’s not nearly +9%, it might be a problem.
- Set money goals per month where you make more than you are spending. Nothing is better than increasing your cash flow.
- Buy a home and stay in your home as long as possible. Those who sold every 4 years are generally losing in built-in interest payments. On that note, you should stay with your current car as long as possible. Bonus, if you upgrade your car; go EV for tax breaks.
- Focus on being financially secure versus trying to hedge education costs. You will be a better service to your kids as a not-broke parent.
Voila. If you’ve done this correctly, you should be well on your way to becoming a millionaire by retirement and on par with inflation.
The average American household is making $84,352 before taxes in 2020. You have to make at least $140,000 by 2040 to remain competitive. It’s not easy but at least you have a destination. Even if these estimates are dead wrong, I’m 100% positive that costs will go up.
My wife and I are shooting to be debt free by 2036. At least that will help lower unnecessary costs.
The finish line is not going to move. So you may as well start running.
L. Delva-Gonzalez
About Author
