The system seems to apply an inflation rate to costs--except Annual Maintenance Fees. And there doesn't seem to be a way to change the fee over time. Have I missed something or misunderstood something.
Thanks,
Al
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Hi Al:
What you should be seeing is the annual inflation rate applied to Maintenance, but you won't see the home real appreciation rate applied. So the evidence that it's increasing with inflation is illustrated by the fact that it appears as the same dollar amount all the way down the column. So it stays the same in today's dollars (i.e., it adjusts each year by the inflation rate you have indicated in assumptions). If it was not impacted by inflation, you'd see it gradually decline (like your fixed mortgage payment). The idea here is that while home insurance and taxes may go up as our home appreciates in value, the cost of the plumber does not.
You can, however, enter any extra expenses related to maintenance in the Special Expenditures panel. In fact, you could put nothing in the housing maintenance and put it all in special expenditures if you like. There you will have lots of flexibility to grow it by some percentage each year, or you can enter each year with its own dollar amount if you like. You can also indicate its tax status.
I'm confused. You say that "What you should be seeing is the annual inflation rate applied to Maintenance." However, the annual inflation rate is set to 3% but the maintenance amount does not change. What am I missing?
Remember: you are looking at "today's dollars" down the column. So it really is changing by the 3% inflation rate. It's staying the same in today's dollars, which means it's really adding 3% each year. If it was not changing, you'd see the amount going down each year as inflation balloons everything around it. If you have a fixed mortgage, you'll notice that your house payment "goes down" each year. It's the same nominal dollar amount, but inflation causes it to be cheaper dollars as we look into the future.
So it's a bit of an illusion created by looking at future dollars. As you look down the columns, if an amount stays the same, you are seeing that amount keep pace with inflation. If the amount gradually drops off like a fixed mortgage, you are seeing inflation outpace it. If you see an amount increasing, you are seeing an amount that outpaces inflation.
Note that the amount you entered for home appreciation said "increase in real terms." That means "real" or over the inflation amount. Zero percent "real" means the amount that inflation is set at. When we earn 6% "nominal" on our money, and inflation is at 4%, then we are earning just 2% "real."
Note how you might have entered your labor earnings. If you said you make 50k per year and then grew that amount by zero, you basically have given yourself a cost of living raise each year (3% if that's what you have inflation set at). That's 3% nominal raise, but zero percent real raise. What you'll see in the report column then is a 50k all the way down in today's dollars.
It's a bit tricky; I hope I haven't made it more complicated with too much information in my answer.
Dan