Inflation, the Silent Thief
We’ve all heard our relatives talk about what life was like “back in the day” when computers were the size of houses, hairstyles were highly questionable, and gasoline was only 36 cents a gallon. While 36 cents for a gallon of gas sounds cheap, it was the average price in 1972. Accounting for inflation, 36 cents in 1972 equals $2.23 in 2020, which is (yep, you guessed it) the current average price of a gallon of gas. While you may already be familiar with the concept of inflation—the increasing cost of goods and services over time—you need to be aware of the negative consequences it can have on your financial well-being if you’re not prepared.
First, it’s essential to incorporate inflation into your financial plan, otherwise, you may get a false sense of security for the future. In 10, 25, or even 50 years from now, you’ll be spending a lot more money to maintain your current lifestyle.
Second, you should have an investment portfolio positioned to outpace the current inflation rate over time and adjusted or rebalanced based on current market conditions.
Last, it’s prudent to know what the current fed funds rate is, since this often changes with inflation, and can ultimately affect your bank’s savings account interest rate.
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