Episode 110 

Should Inflation Really Concern You? 

Prices of goods and services continue to rise as a result of inflation. Tune in to learn how this impacts your personal finances and some things you can do to help offset the effects of inflation. 

Do you ever get the feeling your money isn’t going as far as it used to? One reason for that may be inflation. Inflation is the word economists use to describe a general increase in prices, and a fall in the purchasing power of money over time. Don’t let yourself be fooled simply because this problem may feel small in the short term. Over the course of years, your money is at risk of losing its purchasing power.

How Inflation Occurs

One reason inflation occurs is when the cost of production goes up, and unfortunately, that cost is passed on to us as the consumer. Many like to think their money is safe in the bank. After all, if their initial deposit of, say $50,000 doesn’t go down, then that must be a good sign. However, if inflation is rising at 3% per year, after 10 years, your investment will only buy you about $37,000 worth of goods. Although you gain interest on your money in a savings account, it is usually not enough to keep up with inflation. Currently the interest rate for an average savings account is about 0.06%. The interest earned is also taxable, so your money gets negatively impacted by inflation and taxation. Inflation plus taxation will eat away at the purchasing power of your money over time.

What to Do?

As consumers and savers, we have no control over inflation rates or the savings account yields at the bank. Here’s what you can do:

  • Cut back on things you’re not using. Do an audit of your expenses and look for things that can be reduced or eliminated, like certain subscriptions that you’re not currently using.
  • W2 employees should continue to show their value in the workplace that’ll leave them in a good position to ask for a raise and or a bonus. Listen to my interview with Rick Gillis, author of Leveling the Paying Field.
  • Get out of the saver mentality and become an investor. While it’s good to have money in the bank for emergency purposes or to meet your short term goals, you want to invest for the long term in something that’ll beat inflation over time, whether it’s the stock market, real estate, or Series I bonds.

Key Takeaways

Inflation creeps up on all of us whether we like it or not, but there are ways to beat it. If it sounds like a daunting challenge to tackle on your own, remember there are professionals that can help. A financial advisor can guide you to the solution that is most suitable for you.

Notes: 

In this episode, Luis talks about the following and more: 

  • What inflation is and why it happens 
  • How your money in the bank is actually losing money over time 
  • The second silent killer eating up your money’s purchasing power 
  • What you need to become in order to outpace inflation over time 

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