Inflation Kills Financial Planning
Do you remember the 5¢ hamburger and a 40¢/hour minimum wage? How about a quarter for a gallon of gasoline? Probably not. I don’t. But I’ve seen a tremendous amount of inflation in my lifetime. If you want something interesting to do, you can go to the government’s inflation calculator and punch some number in. Inflation has been around since money was invented. Did it ruin the investment climate? I think not. But the prices you see above are real numbers. So if you’re not keeping up with inflation, you can end up working really hard and still be going backward. Your cash flow coming in has to outpace inflation. Inflations kills your plans if you ignore it.
What is Inflation?
You can’t see it, but it’s there. Over time inflation can be a huge unseen risk to your lifestyle and other areas of your finances. Going back all the way to 1871, according to data from Robert Shiller, inflation has averaged 2.1% per year. Since 1945, it’s been higher than that, coming in at around 3.9% a year. Inflation is simply a general rise in prices. It means that over time, your current money will buy fewer goods and services in the future. Inflation is one of the main reasons you need to save and invest for the future.
On the other hand, if you just put all the money you earned under your mattress and stopped working, that money would slowly lose value over time. This is the reason that cash should be looked at as an asset but not an investment. Inflation is why so many retired people over time have to lower their standard of living. They did not keep pace with inflation. In the course of your recovery, you will need to keep pace with inflation. But for most of you, I have calculated 36 critical months to turn around your life. Remember, inflation kills. Inflation needs to be dealt with and kept in mind, but I am going to focus on the next 36 months for most of what I share here.