Lazy Man and Money

The Financially Independent Baby

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invest baby money
Look at all this money!
Thanks to a tip from Joe at Retire by 40, I learned that Bill Ackman recently wrote about an interesting idea. I joke that Bill Ackman is my best friend because I met him once. Maybe Bill Ackman is a reader of this blog, because his idea is suspiciously close to something I wrote about several years ago.

Here’s is Bill Ackman’s idea:

“There are a number of potential solutions to this [wealth inequality] problem. Among them, the government could establish and fund investment accounts for every child born in America. The funds could be invested in zero-cost equity index funds, be prohibited from withdrawal until retirement, and could compound tax free for 65 years. At historical rates of equity returns of 8% per annum, a $6,750 at birth retirement account – which would cost $26 billion annually based on the average number of children born in the U.S. each year – would provide retirement assets of more than $1 million at age 65.”

To bring you up to speed, but the wealth inequity problem that Ackman writes about it is the fact that many, many Americans do not own stock on equities of US companies. The ones who do own stock, presumably all the readers here, have seen their wealth grow greatly. Those that have not owned stock have not enjoyed compounding wealth. They gotten left behind with stagnant wages, rising health care costs, and other systemic problems.

Mr. Ackman’s idea is simply to have Uncle Sam ensure that every new, tiny American human will be included in America’s corporate financial success.

A one-time investment of $6,750 to (somewhat likely) solve America’s financial retirement crisis?

Count me in. That’s why I wrote about this article five years ago. My projection was that we’d need only $6,622, but I like that Bill decided to round up to a more even number. (I’m leaving the projected growth rates in place, even though they may be aggressive in 2020.)

It’s very hard to get the government to act on an idea that is so big. Millions would complain that it would raise the national debt which is already sky-high. Millions more would say that it lacks fairness as they didn’t get a million dollars at retirement. These criticisms are fair and worth discussing. I think there are solutions to these complaints, but that’s an article for another day. For now let’s agree that the government isn’t going to just approve Ackman’s idea overnight and save every baby’s retirement.

In other words, we are going to have to try to do this ourselves…

… And because I like to go to extremes, rather than trying to solve retirement, why not solve all of a baby’s biggest life milestones.

The Financially Independent Baby

I had a crazy idea yesterday in 2015. Let’s imagine that a blessed baby was born today. For lack of a better name, we’ll call him Baby Gronk.

The parents of Gronk aren’t what you’d call traditionally rich. They live a frugal lifestyle and have saved up some money over time. What they lack in excess money, they make up in wisdom… wisdom of personal finance and compound interest.

These parents decide that they are going to use that personal finance wisdom to spoil Gronk by covering some of his major life expenses on the day he is born. (While I believe that little Gronk should learn to “financially fly on his own”, we’ll leave those personal decisions to the reader.)

The question is, “How much should they put aside to cover all the expenses with life’s major milestones?”

Gronk’s parents proceeded to make a bunch of assumptions, many of which will turn out to be wrong. That’s the nature of predicting the future. Their plan is to use the information they have at their disposal to make the best possible estimates and adjust as time marches forward.

They also realize that if their calculation is a little off, Gronk will pitch in the difference. They aren’t going to let a quest for perfection stop them from a great attempt.

First Car (Age 16)

Gronk’s parents have set up a budget of $6,000 for his first car at age 16. Using the rule of 72, they realize that their money may reasonably double when Gronk turns 8 (a growth of ~8.5%). They also realize that it may double again when he’s 16.

Working backwards from their budget, they decide to put aside $1,500 hoping that it turns to $3,000 (age 8) and $6,000 (age 16).

College (Age 18)

Gronk’s parents decide to make this calculation easy and limit this expense to tuition. Yes, there are going

The big question is whether Gronk’s parents want to fund in-state public college or private college. The price difference between the two is huge. Public in-state tuition is ~$9K while private is ~$31K. Multiply that out by four years and it is either ~$36K or ~$124K.

Since the calculations are so different, Gronk’s parents decide to do the math separately.

Age 18 is very close to the age 16 exercise with the first car above. However, it’s just different enough that Gronk’s parents decide to break out a calculator instead of using the rule of 72. They use the “y to the x” key to calculate compound interest. They specifically type in “1.085”, “y to the x”, then “18” to arrive at 4.34… a key number we’ll use. The 1.085 comes from projecting a 8.5% growth on the current investment (the “1”).

Why pick 8.5%? Your guess on the growth of the market is as good as mine. In 2020, I would adjust this lower. I originally went with 8.5% because it was reasonable enough (near Ackman’s 8% assumption) and it was a convenient number coming from the car example above. Now that you know how to do the calculation, feel free to substitute your own growth assumption.

This tells us that every dollar we invest will yield 4.34 dollars… giving our assumptions and uncertainties in the market. We can mentally check this using the above example of doubling, and doubling again. Double a dollar once and you get two. Double it again and you get four. In this case we have a little more time (two years) so it’s a little more than four, 4.34.

Now that we think we can grow one dollar to $4.34 in 18 years, we just need to divide our total expenses…

… for public in-state college, we’d need to roughly put aside $8,300 ($36,000/$4.34).
… for private college, we’d need to roughly put aside $28,571 ($124,000/$4.34).

What’s interesting to me is that this almost comes out to exactly one year of tuition. In fact, if we used an expected return of 8% it comes out to exactly one year of tuition.

It’s impossible to say whether Baby Gronk’s parents should plan for public or private school. Perhaps they could plan public school, because they are already going far above and beyond what most parents would ever do. It’s not too much to ask Baby Gronk to bridge the gap to private college with financial aid if that’s a decision they make down the line.

Wedding (Age 25)

The average cost of a wedding varies greatly. Since Gronk is just a baby, the parents use this to estimate $30,000, a nice round number.

They use the same math as in the previous example and realize that at 8.5% growth a dollar is worth $7.69 in 25 years. This means that they need to put aside $3,900 at birth to pay for the wedding.

(We’ll ignore outdated traditions of the bride’s side of the family paying for it. Additionally, we’ll presume Gronk’s parents want to pay for the whole wedding instead of half. Or we can keep the traditions and calculate the wedding expenses for Gronkette.)

Down Payment for First Home (Age 25)

Who buys a home the same year they are married? I’m not sure and neither are Gronk’s parents. Sometimes people buy homes before they get married and sometimes they get married before they buy homes.

Since we have the same age and the same interest rate, we have the same growth of a dollar – $7.69.

Gronk’s parents decide to put in the 20% down-payment and not buy the house outright. (They’ve already spoiled him more than enough as it is.)

They think a starter home should cost around $200,000. This depends greatly on where they live and what they agree is a starter home. The parents may have to adjust this to their area of the country. The parents budget $40,000 which is 20% down on that $200,000 home.

Anticipating a dollar grows to $7.69, they realize that need to only invest $5,200 to cover the $40,000 down payment.

Retirement (Age 70)

Up to this point, many would say that Gronk’s parents are ridiculous. They don’t care. Instead, they say, “In for a penny, in for a pound!”

They estimate that Gronk will want to retire at age 70. That’s where the trend is nowadays with improved health care. They start with the rule of 4%. This rule of thumb suggests that one can withdraw 4% of his/her investments to live for 30 years. (This is an over-simplified version for the sake of this exercise.)

They realize that they need to get him 2 million dollars at age 70 so that he can withdraw $80,000 a year (4% of $2M) to live off of.

Getting Baby Gronk 2 million dollars sounds absurd, but Gronk’s parents realize that time is on their side. At 8.5% growth, a single dollar grows to $302 in 70 years.

Let’s pause for a minute. In a previous version of this article, I didn’t calculate the inflation and just added it at the end as an apology. That’s simply not good enough with projecting things 70 years in the future. Inflation is huge over that time.

How big is inflation? Typically it is around 3% a year. That means a dollar growing at 8.5% a year really only has only 5.5% more buying power. So if you do 5.5% over 70 years, $1 can have the buying power as $42.43, not $302.

They divide $2,000,000 by $302 $42.43 and realize that they need to put aside $6,622 $47,136 at his birth to cover his entire retirement. That’s far more than most people have around. However, Gronk’s parents could choose to fund a retirement of only $40,000 instead of $80,000. They could also spread it over a few years.

Final Thoughts

Smart readers should be screaming “Shenanigans!!!” I didn’t factor inflation in any of the examples above. You got me. I also didn’t factor in taxes. These are very significant. Gronk’s parents might end up having to put twice as much in. Or they may have settle with the idea that they are only covering 2/3rd of all Baby Gronk’s major life expenses. My guess is that they’ll sleep well enough at night if it is the latter.

The idea of this exercise was never about complete accuracy. It’s impossible to accurately plan out a person’s expenses at birth. Instead, it was about illustrating how the idea of applying compound interest at birth could work.

Let’s add up all the expenses:

Car – $1,500
Public College – $8,300
Wedding – $3,900
First Home – $5,200
Retirement – $47,136
———————–
Total – $66,036

If Gronk’s parents were able to put aside around $66,000 at Gronk’s birth, he’d have most of life’s major milestones covered. To be clear $66,000 is a lot of money. However, for a lifetime of near financial freedom it isn’t as much as you might think.

This article was originally published Nov 23, 2015 at 12:15 PM

Do I Need a Certified Financial Planner?

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For decades now, I’ve been studying personal finance. It’s gotten to the point that sometimes, I don’t know if I have anything new to add. In fact, one my goals this year is to organize the 2 million words I’ve written… maybe cut it down to a million words that cover all the major points.

(Don’t worry I intend to keep a back-up of my articles around if you are curious about my money thoughts on March 8th, 2007… and I know you are!)

After all of that, that title was surprise, even to me. I think the answer is, “Yes, I do need a Certified Financial Planner.” However, it’s probably not for what most certified financial planners typical do. I have a few advanced questions.

I’ll cover the advanced question that sent me down this rabbit hole in a minute. For now, let’s consider a simple possible conclusion. If I can benefit from a CFP, there’s a strong chance you can too… or maybe not.

Why See a Certified Financial Planner Now?

The simple answer is that my finances were easy. There were a set of relatively basic rules and we had the income to cover them. For example, we maxed out retirement accounts and invested them well. We bought rental properties and built and empire. I’m extremely good at saving money on all sorts of expenses from food to clothes to electricity (solar panels).

It’s all worked out very well, much better than we could have expected…

…and that’s the “problem”

Our finances have gotten fairly complex with the diverse number of income streams we have. It’s made me start to look at things that many people perhaps should not focus on. One of those things is income tax. As our money continues to compound and snowball, we may reach higher tax brackets. I don’t mind paying my fair share, but I don’t want to give them any more than I have to. I’ll play the game that they created to pay less taxes if I can. Also, if the government is going to act like it currently does, well I don’t want any part in funding this absurdity – or any more than I legally have to.

I’d rather:

  • Donate to charities that I believe in – in the best possible way.
  • Leaving behind a financial family legacy
  • Maximizing the amount of sunsets, museums, and any other wonderful things I can fit into this short life

Details of the Financial “Problem”

I keep putting “problem” in quotes because it’s a situation at least 99% would love to deal with. The issue is about optimization. If we make some mistakes with our money, we’ll likely still be in tremendous shape. However, we’ll limit those three things of above and have less money for them than we could have.

I’ve already mentioned my biggest concern. It’s taxes.

Many of the personal finance writers who retire early have saved up a lot of money when they were young and are living frugally off of the investments generated by those savings. They earn a low income, but it’s enough through their frugal activities like travel hacking, geographic arbitrage, and owning a home in a low property tax area. This low income can often be so low that they pay very little in taxes.

(Note: Some criticize them for not paying their fair share, but I’m not going to pass judgment. Don’t hate the players, hate the game, right?)

This is a tremendous plan for them, but it’s not likely to work for us.

My wife’s pension alone is substantial already. There’s no tax trick to make it look lower. We have investment properties and the income from those could be substantial as well. We may be able to reinvest that money in upgrades or further real estate, so that income doesn’t get too substantial. However, we’d like to be able to use that money for things like college expenses.

The biggest thing coming down the road is our investments. We’re 43 now and after years of saving for retirement in those accounts, they are doing quite well. We might not touch them for another 30 years, meaning that they’ll be very big when it comes time to take them. Many are in TSPs, SEP-IRAs, and Rollover IRAs (from 401Ks), so we’ll have to pay taxes on them then. We could be in a high tax bracket.

Most people who retire earn less in retirement, so their tax bill on deferred taxes is less. I have a feeling ours could be more. A certified financial planner could give us a second educated view into all this.

One thing that intrigues me is that the taxation of qualified dividends is very low – potentially even zero. It’s quite possible that it’s better to hold stocks (including ETFs) outside of our tax-deferred accounts. It looks like we’d only pay 15% maximum on the income from these dividends vs. the 28% (or more) that we’d have to pay when it comes out of tax-deferred accounts.

All of this goes into main financial question of the year (so far): Is it okay not to save for retirement?

Of course, we’d still be saving, but doing it in a way that potentially allows us to pay fewer taxes in the future.

This all me a case of me overthinking things. (I have a tendency to do that.) In this case, getting a second opinion can only be seen as a positive thing, right?

And that brings me to my original thought, “If I can benefit from a certified financial planner, there’s probably a good chance you can too.”

Fact Check: Money Magazine’s “I Saved $100,000 in 3.5 Years on a $54K salary”

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A couple of days ago, I was reading the September issue of Money Magazine and found an interesting article: “I Saved $100,000 in 3.5 Years on a $54,000 Salary.”

The article in the magazine is a substantially different from the online version. It was the print version that pushed me to write this… I only looked at the online version as a means of conveying the print version. That (print) version leaves out a critical phrase of “from 2004 to 2008 before she was married” at the beginning of the article, which is extremely important context. I’ll dig more into this at the end of the article.

My mind immediately starting doing the math on saving $100,000 with a $54K salary. That seems like a huge amount especially on that salary. With the aid of a calculator, it looks like Bola Sokunbi salary was $189K over 3.5 years. If I presume a 20% tax rate, it is around $150K in take home salary. That’s an exciting savings rate of around 66%. Wow! Great job!

It would seem that she lived on the remaining 40K for 3.5 years. I really need to know more about this! Everyone’s life circumstances are different, but maybe I can learn some new frugal tips.

As I started to read the article, Money Magazine’s narrative unraveled.

Sokunbi works in New York City and commutes from Hunterdon County, N.J. BestPlaces.net has the cost of living at 134. That’s 34% more than the national average. Translation: It’s not a cheap place to live.

She has twin 4 year olds. As a father of a 4 and a 5 year old, I can say that childcare is expensive. I think it could eat up the 40K alone in 18 months, especially when considering two children… especially in a place that a high cost of living. It’s not the kind of thing that you can be frugal with… it’s almost directly paying someone else’s salary. It’s not the kind of think you’ll get a discount on… and even if you could, would you want a discount on childcare?

So the expenses seem to be high. How could Sokunbi make it work? The article mentions in passing that her husband is a doctor. I’m sure having a spouse who is a doctor doesn’t factor into the finances much… or at least that seems to be what Money Magazine thinks.

What else could be a factor? She launched a website 3 years ago that made $25,000 in the first year. That’s not in the salary number. We don’t know what it made in the next few years. According to the article, “She developed it on the side for a year…” We’ll get back to this in a bit.

Does she have more income that’s not salary? Yep, her wedding photography business brings in between $3,000 and $5,000 per wedding.

This is where I stop and stress that I’m not criticizing Sokunbi. She’s obviously working extremely hard and making a number of great financial moves.

I’m criticizing Money Magazine’s title and premise, because the $54K annual salary is extremely misleading. There’s probably another $65,000 between websites and wedding photography. I’m conservatively estimating just 10 weddings a year ($40,000) and the $25,000 from her website (presuming the income didn’t grow from the first year). So that’s around $120K before we factor in what her doctor-husband makes. If he makes $200K (probably not unusual for a doctor in that area), that’s a household income of $300K a year.

If my assumption of a household income of 300K a year is wrong, I apologize. However, the article doesn’t seem to give us a better household number to do a real income/expense analysis.

At least the article does mention that Sokunbi’s mother paid for her college so there’s no student loan debt to worry about. I didn’t see any information about student loan debt for husband, which could significant considering that he’s a doctor.

Let’s dig a little deeper, shall we?

“None of Sokunbi’s friends were saving as aggressively as she was right out of college. Some were making twice what she earned and saving nothing at all… Another tailwind was the fact that she didn’t have much time to spend money. She travelled a lot for work during the week and began a side gig as a wedding photographer on the weekends.”

I find this confusing. The article title sets a focus on the timeline of the last 3.5 years. However, this anecdote seems to go back to the time after graduating college, which the article states was 2004. In the context of the article’s title (“saved $100,000 in 3.5 years”) I thought that travelling for work and being a wedding photographer was part of the “saving $100,000” equation. It wasn’t until I thought, “Hey she had two twin 1 year olds 3.5 years ago, how does ‘traveled a lot for work during the week’ logistically work?

(That’s not to say that it couldn’t work if someone else caring for the twins, but that’s information that I would have liked to know.)

Let’s get back to the Clever Girl Finance website and her “salary.” The Money article also states:

“Two years ago, Sokunbi quit her consulting job to focus on the business full time.”

Well, that undermines the whole 3.5 years of a $54,000 salary, right? It seems like we are looking at 1.5 years of the $54,000 salary, plus whatever the undisclosed amount Clever Girl Finances has made in the last couple of years.

I feel like Money Magazine put me on a roller coaster of mystery income and expenses.

Finally a Lesson!

Yes, “Finally a lesson” is borrowing from one of my favorite cartoons Finally a Lesson about investing in real estate to earn passive income.

After writing all this up, I decided it might be best to go to the source rather than Money Magazine. Fortunately, Sokunbi has explains how she saved $100K on her website.

It seems that most of my confusion here is caused by the context of the prit article. From the source, Sokunbi, it seems the article is cover two different times. The saving of $100K in 3.5 years seems to be about 2004, after college. The stuff about today, well… that’s not relevant. Please forget about the doctor-husband, kids, and the website. Perhaps she didn’t live in NJ at the time either.

Given the true source of the information, we get new, important information (besides that Sokunbi can completely rock a white dress):

She “got a raise and a bonus every year and got promoted raising my salary by the end of the 3.5 years to ~$74,000 (which was really ~$52,000 after taxes).” It seems to be completely false that she “Saved $100,000 in 3.5 Years on a $54K salary.” Even aside from all the misleading stuff I mentioned above, the salary was not $54K for 3.5 years. In addition, the author of the Money Magazine article seems to omit the mention of a bonus. It’s not a big bonus ($1500 after taxes), but it’s “still something” in Sokunbi’s words. It buys a lot of Ramen which seems to have been her food of choice.

The next critical thing missing from Money Magazine’s article is that the money is 401K, which includes her employer’s match. That’s pre-tax money, and free money, which is important context.

Next we have:

“This was also before the last major US recession and so the money I contributed had grown because the stock market had been performing pretty well.”

That 401K had really grown due to the timing the stock market as well. It’s not “saving” in the context of “contributions”, but more of a net worth thing. I’ve been fairly sarcastic here, but if invested $15K in Facebook around $25 (a target=”new” href=”https://www.lazymanandmoney.com/ask-the-readers-is-this-trading-or-investing/”>I did buy Facebook stock at this price) and it grew to $100K, is that really “saving $100K?” I don’t think so.

There’s more:

“I lived at home for six months after graduating from college before moving into my first place which helped me really kickstart my savings because I was able to save most of my pay for those six months.”

Well this didn’t make the Money Magazine article at all, but even Sokunbi acknowledges how much it helped. This could have been part of “her mother paid for her college education” that was mentioned in the article.

And then there’s this:

“The first year of my [photography] business I earned around $10,000. The second year I earned around $30,000. Subsequent years I earned more.”

This appears to have started in her 2nd year of saving. I’ll ignore the subsequent years, because that might be outside of the 3.5 years timeline. Still, we have another $40K of income aside from salary.

Final Thoughts

There’s so much here that my head is spinning.

If we amoritize the photography business ($40K over 3.5 years) we get around $11K a year. If we take a guess about the average salary (starting at $52K) that “grew every year, plus promotions and the bonus” (my quote not hers), I’d say it’s around 62K (it topped at $72K aside from the bonus).

I think we are looking at around $70K+ income (maybe $75K) and a living-at-home situation which helped her save most of her income. Those savings could be mostly pre-tax in a 401K account that benefited greatly from a bull market.

I need to stress once again that I’m not criticizing Sokunbi. We actually have a lot in common (living at home for 6 months, saving largely in a 401K plan, side hustles including a personal finance website). I’m criticizing Money Magazine for their marketing and confusion about recent stuff (doctor husband, twins, etc.) when they should have covered the story literally a decade ago.

I want to give credit to Sokunbi for working extremely hard and making great financial decisions. At the end of the day, that’s what this article should have been about.

Two Months to Take Charge of Your Money

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This article contains affiliate links.

Three weeks ago my son discovered Pokemon. It derailed my grand Summer of Math plan. At first I tried to ignore Pokemon, but I soon learned that wasn’t going to work.

Magikarp - Gyarados
Magikarp is a joke of a Pokemon with no powers, except the ability to evolve into Gyarados one of the most powerful Pokemon

Instead, I did the exact opposite, I embraced the phase. I evolved from Magikarp to Gyarados. I went to the library and got a this Pokemon guide/directory. My 4 and 5 year old are now teaching themselves dictionary skills as they look up various Pokemon and their abilities.

The lesson here is simple: Ignoring a problem doesn’t make it go away. Embracing it can be an opportunity to learn and grow.

Right now you are reading the money blog that I started in April, 2006. I didn’t know where the blog would go, but I knew I didn’t want to get down to my last few dollars like I did with the dot-com bust. I knew I wanted a strong Plan B (and C an D) in case software engineering jobs continued to get outsourced to foreign countries.

Today, I can look back and say there were a lot of pieces of the puzzle. I started tracking my net worth (first with a spreadsheet, then with Personal Capital. That forced me keep my spending in check as I wanted to see that number grow every month. There were other factors, the greatest being marrying well. There was a lot of good luck as well, even if some of that was just avoiding disastrous bad luck.

However, everything started with one initial spark. I saw a few blogs where people wrote about money. I decided why not give that a try? I quickly realized something that I that I had forgotten:

The best way to learn is by doing.

By pressuring myself to write about money every day, I had to some up with something to write about. Some people lose weight by making food journals. Starting a money blog is your food journal. (If you are looking for a cheap, easy place to get started, Bluehost can help you out.)

Maybe I’m living up to my Lazy moniker, but I often find that I get excited about something and then forget about it as life “happens.” After all, even though most people don’t think I work, I’m always busy with a number of things.

This is where the “two months” comes into play. In about 2 months, the biggest personal finance blogger conference is happening: Fincon 2018. That’s enough time to establish a yourself as a blogger. It’s also around the time when the initial excitement of starting a blog seems to wear off. It’s really the only place where you can meet face-to-face with more than a thousand of people who are (more or less) like you.

Prices go up at the end of the July (Tuesday midnight), so you may want to sign up for this first.

Finally, if you book the conference now, you’ll lock yourself into blogging consistently until then. It’s a little like committing to running a race. Whether, it’s a 5K, half marathon, or marathon you’ll have created a goal in the future.

I will be the first to admit that going to Fincon is not cheap. Between tickets, flight, and hotel, it can add-up quite a bit. It certainly isn’t for everyone. Personally, I’ve been to every one except for the one where I stayed home to see my son being born. This year, the whole family is going, and we’ll celebrate his 6th birthday in Orlando. Do you think we’ll find any fun things for kids down there ;-)?

As I wrote in the beginning, this article has affiliate links. Roughly 10,000 of them, give or take several thousand. That means that if you click on pretty much anything other than the Summer of Math article (or how I keep myself busy) and decide it is a good service that you’d like to try, I’ll get a little money. That includes even the free Personal Capital service. However, I honestly believe that if you track your finances, start a money blog, and network with other money bloggers, it will put you on the right path to improving your finances.

I can’t think of a single personal finance blogger who has seen their financial lives get worse since they’ve started blogging. In a dozen years, I’ve probably talked with several hundred personal finances bloggers.

I feel that’s a very strong percentage and great odds at success.

Introducing the Subway Footlong Index (SFI)

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I was reading Retire By 40 a couple of days ago and Joe had a good article about not forgetting about inflation in retirement. After all, if you are going to “Retire by 40”, you’ve got to consider dealing with potentially 45 years (or more) of inflation. If you retire at age 65, you are looking at “only” 20 (or more years). (Yes, that’s me getting ‘mathy’ by subtracting 25.)

Inflation over 45 years is a significantly bigger deal than over 20 years.

In the article, Joe mentioned the rising prices of the lunch special at a local Chinese restaurant. In a few years, the $5.50 special became a $7 one.

That triggered a thought about my own mental inflation index, the price of Subway footlongs subs. You might remember that back in 2008, Subway launched a $5 footlong promotion. From everything I’ve read, it was fabulous successful, so successful that it became part of the regular menu.

Over time the number of subs that were available for $5 dwindled. Then they disappeared except for a monthly special. That disappeared and, in my area, has been replaced with $3 six-inch sub. The $5 footlong became $5.50. Now the cheapest footlong is $6.25.

The Subway Footlong Index (SFI) is a good way to thin slice overall inflation because Subway can’t reduce the product and still call it a footlong. (Though I supposed they could “thin slice” in a different way by making the meats thinner or smaller). It’s different than the price of a computer which always seems to be the same or a “half gallon” of ice cream that shrinks to 1.75 quarts.

Another useful thing about SFI is that most of you know what I’m referring to. Sure in San Francisco, Hawaii, or New York, the same subs might be $7, but people have probably traveled to an area with a Subway that has typical pricing.

Let’s look Subway prices and see if the SFI makes any sense with regard to traditional inflation indexes. I’m going to presume that you might have a $6 footlongs (I think I’ve still seen these). That means that prices have gone up around $1 (or $1.25 for me) in 8 years… from 2008-2016. We’ll call it between 20-25% over 8 years.

That’s around 2.7% per year compounded annually… which seems in line with other measures of inflation.

Maybe there really is something to this Subway Footlong Index? What do you think? Let me know in the comments.