What is inflation?
At ELP Budgeting Services it is essential we keep our ear to the economy streets in order to provide the most up to date information for our clients. It is likely you have heard of inflation but do not know what it means. If you care about money, inflation is extremely important to understand or your pockets will pay.
Inflation is defined as “the decline of purchasing power of a given currency over time.” Inflation in the United States means the US Dollar is worth less than in prior periods. It is the rate at which the value of a currency is falling, while the prices of goods and services is rising.
One sign of inflation is an increase in the prices of goods and services in a select market. Have you noticed rising gas prices? What about construction price gauging as the cost of building materials has skyrocketed. Does your grocery bill seem to be higher and higher for the same items? Inflation also has the cost of food increasing through the roof. Have you gone to buy a car lately? You’re likely paying much more than it’s worth due to production line shortages.
Why is this happening?
Inflation can have a positive or negative view depending where you stand. As a consumer, inflation is rarely positive. You are still working the same hours, getting paid the same amount, but you get less for your money.
While there are different types of inflation, we like to keep things simple and easy to understand at ELP Budgeting Services. The Coronavirus pandemic has played a major role in the exponential increase of inflation rates. Many industries experienced a sharp decline and even halt in business. Factories closed down, demand decreased, and cash flow paused. As life creeped back to normal, the demand greatly outpaced the supply creating bottlenecks in supply chains. When supply is low, industries charge more per unit. Let’s also not forget that industries are attempting to make up for what they lost by charging even more. While some of the price increases are beyond their control, you’re likely seeing a multiplication factor in pricing for this reason.
What does it mean for you?
For reference, ELP Budgeting Services projects future investment earnings accounting for an average 2% inflation rate. Since April 2021, inflation is estimated to be between 4 and 6 percent! This is double and triple the average inflation rate over a period of time.
For the average consumer with money in a savings account, checking account, or cash, the value of the money is drastically decreasing. The laughable interest earned from these accounts simply cannot outpace the rate of inflation, even on a good day.
What’s this mean for you? Savings and checking accounts are unavoidable in today’s economy, but with rising inflation rates, excess money should not be kept in said accounts. Keep only enough to house an emergency fund, pay bills, and have a small buffer. Your money needs to be invested where average annual returns are around 10% with wise investments. Subtracting up to 6% interest still allows you to earn on your money.
How ELP Budgeting Services Can Help
Now that you understand what inflation is and how it’s impacting you, what do you do?
- Budget: It is essential to have proper money management skills at all times, but especially when your money is decreasing in value. ELP Budgeting Services budgeting plans assign a job to every dollar.
- Pursue Debt Freedom: While the money you have is losing value, high interest debt is costing you more. Our debt cancellation program helps our clients manage their money while cancelling debt in the shortest time possible.
- Invest Smart!: While this step is essential to combatting inflation, it cannot and should not be pursued without steps 1 and 2 mastered. ELP University teaches our clients the ins and outs of smart investing, while putting them in the driver’s seat of a wealthy future (even when inflation is expected).
Whatever you do, don’t wait and let inflation take away what you’ve worked so hard to earn. Act now!