Fred the Bus Driver

Let’s take the example of Fred. Fred is a bus driver who took up his job on Jan 1st 2000. This was at a starting salary of $35,000. Fred is a model worker who has been an excellent driver.
Each year his company rewards him with a 3% pay rise. In fact by 2008 he is earning $44,336. This is a 27% increase from his 2000 wage.

However inflation has gone up by 29% (Please note this is a real figure provided by the Australian Government). What this means is that if you purchased a bag of shopping in 2000 for $100 it would now cost you $129.00. As you can see, Fred is actually behind the 8 ball. He is earning less now than when he started. No not less money, but less purchasing power. Fred’s company values Fred less now than when he started, as far as what Fred could purchase with his money!

Even though Fred has been a model worker, his company has gotten away with only giving him pay rises that are LESS than inflation.

The moral of the story is that when your work gives you a pay rise how does this sit with inflation. Are they giving you any more PURCHASING POWER? Or are they only giving you the same purchasing power going forward? Or are they giving you even less!

Just like Fred you need to protect yourself against inflation. Each and every year prices rise and this is a fact of life. Are you getting a pay rise to ensure that your standard of living does not go down?

If on average your bills rise by 8%. However you are only getting a 3% pay rise this is a step down in your purchasing power/standard of living.