Do you know what Inflation is ?
This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, should not be treated as such.
What is inflation?
Inflation is the general increase in prices of goods and the decrease purchasing power of money over time.
Why should this matter to you?
As time goes by (and the Feds keep printing money), the inevitable consequence is Inflation. It is often called "the silent tax" since people do not usually notice it happening. A gallon of milk in 1930 was $0.36 cents. Today it is $4.45. That my friend IS inflation.
If your wages does not keep up with it, you will have a tough time.
Whether you like it or not, inflation is a fact of life. What you do now determines the outcome later. Faced with this situation of putting money under your mattress or in a bank account with a low interest rate is the worst decision you could make. Your money will lose purchasing power. As goods increase in price, you will need more money to buy same goods.
Why is the current pandemic relevant? The COVID-19 pandemic resulted in lockdowns. This in turn effectively shut down the economy of the US and the world. People stopped buying stuff. 30+ million jobs lost means these people will not be buying knick-knacks in stores, eating out, or going on vacations. They will be missing car/boat payments and quite possibly will not be paying rent/mortgage.
You might ask yourself; how does the government tackle this chaos? In a nutshell - printing money and lowering interest rates. The more money there is in the street, the higher the prices of things will be. The lower the interest rates are, the cheaper it is to get a loan, but good luck trying to get a loan these days.
What should you do?
Fortunately, you have options. None are easy but hey, who said life is easy?
1- Invest in the stock market. Over many years, the returns on the investments have proven this to be a protection. Yes, even taking into account market crashes. Think about it like an electric escalator going up.
2- Invest in real estate. Properties tend to appreciate 1-2% per year. Also, you will have tax write outs and mortgage payoff.
3- Pay off debt. Credit card debt is the first order of business.
4- Invest in gold. This precious metal usually keeps its value and increases as inflation increases.
5- Decrease spending and save money to spend in assets not liabilities.
6- Invest in education in order to attain a higher salary.
7- Do not pay off the mortgage, in these times you need cash.
Whatever your choice is, just make sure you have a plan. Knowledge is power.
Till next time,