Do you have a residual income to offset inflation
Inflation is real
If you don’t prepare for inflation, you’ll get burned by it eventually. But the bigger risk is not inflation itself. The bigger risk is preparing for inflation in a way that burns you.
For example, the most common way to prepare for inflation is to buy a house. Houses go up in value more than the inflation rate over long periods of time, but they can also go down in value much more than the inflation rate over long periods of time too. In particular, if you buy at a time when prices are high, interest rates are low, and leverage is high, as in most places today, your house may well lose money relative to inflation. So if your house is your only way of preparing for inflation, you may actually have made yourself worse off.
Had you prepared for inflation
And another problem with using housing to prepare for inflation is that it doesn’t generate income if you need it. If you own a house outright or even have a mortgage on a house worth less than its current market value, then it’s hard to use your home equity to generate an income when there’s nothing else coming in.
I had a conversation with a friend who was worried about inflation. He showed me some data from the Bureau of Labor Statistics and argued that if inflation continued at its current rate, then by the year 2025, a gallon of milk would cost $15 and a new car would be $150,000.
I asked him how he knew that these particular items would continue to increase in price at the same rate as everything else. He said that he didn’t know for sure, but it made sense.
You are probably worried about inflation. You should be. It is a terrible thing.
Inflation is when you pay $15 for the $10 haircut you used to get for $5 when you had hair.
Inflation is when you pay $50 for a concert ticket that, when you were young, cost $5 and included a free album by the opening act.
Inflation is what happens when your salary stays the same but everything else gets more expensive.
Inflation is why your parents always seem so much older than you are, no matter how old you are.
The mass majority of Americans are affected by this inflation and it will only get worse if we don’t start profiting from this system
Inflation is a slippery little devil. It changes everything. Your money buys less and less. The consumer price index (CPI) — a metric that tracks changes in the prices paid by consumers for goods and services — illustrates just how dramatic this change can be.
Do you have a residual income to offset inflation?
According to the Bureau of Labor Statistics (BLS), prices have risen by 2,515% in the past 100 years, with an average annual inflation rate of 3.22%. So, if you paid $100 for something in 1920, it would cost $2,615 today.
What does this mean? It means that most people’s incomes haven’t kept pace with inflation over the years, which is one reason why more people are looking for ways to generate passive income.
The vast majority of Americans will be affected by rising interest rates in one way or another. And with the Federal Reserve raising rates, financial experts expect the rest of the market to follow suit.
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