HONESTLY, it was hard to hold back. Affirmation, that's what was felt when reading that Bermuda has the highest per capita gross domestic product in the world.

Not because of that spectacular achievement, but as most regular families trying to manage regular household budgets realise, the real Bermuda GDP inflation rate is 4.3 percent.

As a planning professional working with real people trying to manage real financial lives since returning to Bermuda in 1998, it was always very apparent to me that the erosion of purchasing power was not happening at an average reported annual rate of 2.7 percent or some other low number.

Yes, it may be mathematically correct for what the statistical calculation covers, but the fixed basket of goods and services that the average population needs are used and are escalating at different rates.

For years, my estimates of general living expenses based upon client reports and first hand experience fell in the four percent annual inflation rate range. Recently, we revamped that upward to a five percent inflator for general goods and services. If you don't agree with this assumption, consider the average increase in cost of food, utilities, gas, education, or health care lately.

Changes in the five-star economies of the United States, Canada, United Kingdom, and Europe impact the Bermuda economy twice over. Our economy experiences not only inflationary pressures from the general price increase in goods and services but the island's general living costs also are susceptible to currency swings. The consistent rise in the Canadian dollar and the English pound have made the inexpensive just the reverse. It is unclear as to whether currency fluctuations were included in the fixed-price inflation basket calculations. Possibly, currency devaluations/appreciations against domestic currency and the US dollar were never factored into this equation and it cannot be done now.

Only in tiny Bermuda does the local resident have to adjust for the impact of currency fluctuations on, not one, not two, not three but four major currencies: Euro, Sterling, Canadian, and US dollars. Most major countries only compute inflation in their own currency. It is beyond their comprehension as to how financially sophisticated on a daily basis Bermuda island dwellers need to be, just to take a flight off the rock, for instance.

Gross Domestic Product and economy-wide inflation calculator numbers are the words of economists and financial analysts. The average resident, who is generally neither, knows too well that living here is very, and unavoidably for many necessities, expensive. Inflation is an indiscriminate unrealised tax that without anticipatory planning cannot be neutralised.

Overheard in a conversation recently between two shoppers is a summation of the mindset that Bermudians have developed over the years. "Don't look at the price. Ask yourself, do you want it? If you do, buy it now. If you don't buy it now, it won't be there when you change your mind."

Not exactly the best way to manage a family budget. As with any business (and running a family budget is a business) there are always two stark choices: Trim your expenses by the inflation rate and/or grow your revenue. This purchase philosophy only works as long as you:

a) Have a job in a growing industry.

b) Have a job that provides incremental raises above the rate of inflation.

c) Have a job that assists you in boosting your education and work skills upward.

d) Can control price increases in all of your expenses, a challenge in a growing economy.

Take away any of those factors and inflation creep erodes your daily dollar every single day.

Inflation is often quoted in average broad terms as to how it impacts a population as a whole. It generally doesn't break down the real monetary cost of purchasing goods and services to a personal level. Inflation calculators make the cost of getting by very real (and surprising to many families) by calculating personal family expenses and comparing that percentage to the overall income level of the wage earners in the family.

Here's how it works. If you are so inclined you can brush up on your maths skills and use the calculator chart enclosed.

Step one. List your estimated food, utility, transportation, health insurance and care, housing costs, repairs, etc on a monthly basis.

Step two. Estimate each of these cost categories in percentage terms of the total amount of your total net take home salary.

Step three. Multiply this percentage by your estimate (or ours) of the increase in your expenses on an annual basis.

Complicated? Too much like the homework that you hated as a teenager? You are correct! So, we'll do the computations for you.

In this example ? see chart, the composite family earns a modest salary, but inflation knows no sympathy. We are all impacted by inflation, but those working so very hard to make it up the financial success ladder are impacted far more.

This family's personal inflation rate takes a bigger chunk of their family budget than a family with higher wage earners. While each expense and inflation rate may be more or less than our assumptions, one thing is clear, the inflation effect is a reverse discriminator. Lower earning households lose more purchasing power proportionately than higher earning households.

When financial success is contingent upon employment success, and employment success is contingent upon working long hours at maximum effort, and family success is contingent on both of those factors, it is a challenge to find the time and the energy to devise strategies to minimise the effect of shrinking dollars. For once, I don't have an answer.

Martha Harris Myron CPA/PFS CFP? is a dual citizen (Bermudian/US). She is a Senior Relations Manager at Argus Financial Limited specialising in planning and investment advisory services for clients considering lifestyle transitions and rewarding retirements. Confidential email can be directed to marthamyronnorthrock.bm or 294-5709.

The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific investment or financial planning advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.