People Scream About Inflation, but for the
Most Part, the Concern
is Not Warranted.
You see, your wages tend to go up equal to, or faster than inflation. Everything costs more, but you have more dollars in your paycheck, so it works out. Now I can hear people screaming already, that their paycheck has NOT kept up with inflation.
But the numbers say otherwise. Proof of that, is that right now wages are rising faster than at any time since the 1980's. (U.S. Bureau of Labor Statistics) Even people getting social security checks will get a whopping 9% raise, the largest increase in 41 years! So it really will balance out.
Granted, there may be some short term difficulty, for some people. For example, prices have already gone up and yet people on social security don't get their 9% increase until January. OK, but that is just a short term difficulty. In the long run, your wages will go up automatically with inflation.
As long as we have kept records, wages have always kept up with inflation. In 1975 the federal minimum wage was $2.10 per hour, compared to $7.25 currently. Yet according to Pew Research, wage earners buying power is the same today as it was in 1975. Prices go up and wages go up and your buying power stays the same.
When your parents were young, gas was cheaper, houses were cheaper, everything was cheaper! But wages were much lower as well. Inflation drives prices up, and then wages will go up. The real issue is how long you have to work to earn the things you need, and inflation does not change that. In the end, inflation does not decrease your purchasing power.
Inflation is Actually the
Friend of Home Buyers.
Even with inflation, if you are buying a house, your monthly payments stay the same. But your wages go up with inflation, so your house payment becomes a smaller and smaller percentage of your paycheck. You earn the house payment in less time! At current rates of inflation, if your house payment takes about a third of your paycheck, in 4 years it will only take about 1/4 of your paycheck. In 8 years it will only take 18%, at which point you will be earning your house payment in about half the time you used to work to earn it.
You see what happens there? Your wages go up to keep up with inflation, so the house payment, which stays the same, becomes a smaller part of your income. I've never met a home owner who didn't appreciate seeing their wages go up with inflation, while their house payment stayed the same. Inflation really is the friend of people that buy things on credit.
Inflation is Also a Friend to Debtors!
Inflation is a debtors best friend. Inflation eats away at the real value of the debt. If you owe your friend one dollar, at current inflation rates, you will only owe 92 cents in one year. The year after that you will only owe 84 cents (in real dollars). In 9 years your debt is cut in half. Not bad for anybody that is in debt.
Who is the Largest Debtor in the World?
Uncle Sam!
That's right, the US Government owes more money than anybody else. It's called the National Debt, and thanks to inflation, the National Debt gets smaller and smaller. Because inflation eats away at debt, the Federal Government benefits from inflation more than anybody else!
The importance of this can't be over emphasized! Without inflation, the national debt would take our country down. Nothing would be more catastrophic than federal bankruptcy.
Is it Possible to Eliminate Inflation? NO!
Inflation Will NOT End, as Long as the Federal Government is the Biggest Beneficiary
of Inflation AND They Control Inflation.
The rate of inflation may vary. You might see the rate fluctuate: One year it might be 4%, the next year 15% or 8%, but inflation will never go away. The only thing that will change is how much inflation occurs in any given year.
All You Can Do Is Get On The Right Side of inflation.
These are the Two Essential Steps you must take to Get on the Right Side of Inflation!
#1 You must live on less than you earn, to generate money to invest. It may require discipline, but this is an essential step. You may have to take drastic steps, such as lowering your standard of living, combining households, skipping vacations or taking on a second job.
#2 The extra money you generate must be invested wisely!
Investments are things that grow in value. Perhaps the stock market, real estate, purchasing your own home if you are a renter, accelerated payments on your mortgage or other debts, new or existing businesses, or education.
The foundation for most peoples financial success and the first investment most people should make is generally home ownership. Buy a house you can afford, in a good location, and remember, inflation will help you pay off the mortgage!
If you invest in the stock market, an index fund is generally better than individual stocks. Warren Buffet, the most successful investor of all time says an S&P 500 index fund is the best approach for most investors. Buffet is referring to funds like FXAIX from Fidelity, SWPPX from Schwab, or VFIAX from Vanguard. Any of these are good choices and some of these brokerages allow you to set up automatic purchases from each paycheck.
If you are paying high interest on any debt, paying that off early is an excellent investment.
If you put your money in a savings account that pays 2.5% interest and inflation is 8%, your money is shrinking, not growing. You want to avoid that type of investment.
If you can invest in an education that will substantially increase your income, try to do so while accumulating little or no student debt.
Inflation Will be Your Friend When You
Take Wise Steps to Manage Your Finances!
Take care and BE HEALTHY!
CW Jasper
November 2022
© 2022· Content is Property Created by CW Jasper
Dr. Jasper, According to Oberlo.com 46.4% of the American workforce are small business workers and The Trusted Professional (an online newspaper) 36.2% of American workers work for large businesses. The rest, 17.4% work for the federal or state government. I suspect that small businesses cannot afford to give workers a COLA (Cost of Living Adjustment) because of the lack of ready capital available to only large businesses. Therefore, I must disagree with you and conclude that inflation definitely does affect the paychecks of a nearly half of the American workforce. Maybe you can explain to me why, when workers are being laid-off and products are becoming more expensive, that we should not be worried. Thank you for the article.