4 things to know about inflation.
Updated: Jun 25
It is hard to turn on the TV or read news without hearing about inflation.
What is inflation? Inflation is the rise in prices over a given period of time.
Gallon of milk in the 1940's was .52 cents, now it is $4.33, that increase in price is called inflation.
Why's is it important? The Buying power of money goes down.
100k could buy more goods back in 1940's compared to know, maybe it could have gotten you a nice beachfront apartment.
Inflation is a necessary part of life, how you tackle it will determine wether you win or the house wins. Salaries most of the time do not keep up with it.
Fact 1 - Inflation is here to stay till the end of time.
Ride the wave instead of getting crushed by it.
Keep in your bank account only what is absolutely needed (emergency fund), the rest invest or pay down debt.
The longer you keep money in a bank account the more it loses buying power. (Prices of goods go up but your money does not)
Fact 2 - Inflationary periods wax and wane.
Look at this graph, this is inflation dating back to the 1960's.
Is it as bad as the 1980's? No. Will it get there? I still cannot predict the future, so do not look here for answers, but unlikely.
Hedge against inflation with the 2 assets that have proven to be resistant - Real estate and the stock market. Look no further, do not make it more complicated than what it already is.
Fact 3 - Cryptocurrency is not a safe haven against inflation.
As you may have heard bitcoin dropped quite dramatically in the last 5 months.
Do not put your hard earned money in cryptocurrency, you are risking it with nothing in return. There are no dividends, no regulatory agency overlooking it, in my honest opinion is the largest Ponzy scheme EVER.
Now bitcoin is hovering in the $20k from a high of just over $60k a few months ago.
Fact 4 - Governments control inflation.
They can manipulate interest rates, wages and supply of money.
This inflationary period was affected by many factors, a big one is the government and they will make sure it does not get out of hand, reason they are raising the interest rates.
Just check out the news about it. Check this timeline from Washington Post. Focus in the right hand side of the paragraph, go month by month, see how the US government completely miscalculated inflation.
They first flood the economy with money (quantitative easing), then they allow inflation to soar, now they increase interest rates to fight it, which will in turn send us into a recession.
Do not panic, you have no control over this. However you do have control over your household economy. Make sure the spending is not more than the income.
Food for thought- Increase your salary or find alternate means of income.
Who does not want to earn more?
If going back to school can net you a higher salary afterwards, then think about going back to school for 1-2 years getting that Masters or MBA or even a bachelors degree.
Look for a another job with a higher salary.
If you are able to create an income by doing jobs outside your 9-5, then go for it.
This additional income if invested wisely could pay dividends in the future, the same way a tree will not give you shade immediately after planting it, It takes time.
Till next time.
Disclaimer - This blog is meant purely for educational discussion of finances. It contains only general information about financial matters. It is not financial advice, should not be treated as such. The contents of this blog are not medical advice, for medical advice please talk to your medical provider.