When people look at the amount of money that they are making compared to how much they were making previously, they see much larger numbers and feel pretty good about themselves and that they are better off.

However, what people often forget to do is to account for inflation. With inflation figured in, most people are probably not making much more than they or people in their situation were 20+ years ago.

The basis behind figuring inflation is that a number (the consumer price index or CPI) is calculated that represents the price of a “market basket” of approximately 300 consumer goods and services that are presumably purchased by a typical consumer.

The Bureau of Labor Statistics updates this “market basket” every two years to more accurately reflect the patters of consumer purchases and better represent the inflation that consumers are experiencing.

Comparing the CPI from two different years will then give you the inflation rate between those two years. Simply take the CPI number from the first year (for 1983 this would be 99.6 or for 2006 it was 201.6) and divide the year you want to convert to divided by the year you want to convert from, then multiply this number by the amount you want to convert to see what that amount would be in the other year’s dollars.

The U.S. Department of Labor has a department referred to as the Bureau of Labor Statistics and they have an entire section of their website dedicated to the consumer price index. On this page, there are links to a CPI listing from different years that is broken down by month and includes percentages. They also have a useful Inflation calculator that will help you figure out what these percentages mean in dollars.

Just playing with some numbers to see how much people are or are not making compared to the past, I compared the difference between 1983 and 2006. If someone were to make $17,000 in 1983, they would have to have made approximately $34,409 in 2006 to have the same buying power. For $11,000 in 1983 the 2006 equivalent would be $22,265 and $6,000 in 1983 would be $12,144 in 2006. Going back the other way, $16,000 in 2006 is the equivalent of $7,905 in 1983.

Even with low inflation rates, over a long enough time period the differences can still be very significant. This is something to keep in mind both when you are comparing how much you are making with a previous point in time and also when planning for retirement.