All of us are being impacted by inflation. Our wages have gone up and so has inflation, which means you have not gained anything. Your at the same spot before you got a raise. I have been looking for a good description as to how inflation affects us.
If your income stays the same while prices go up, you'll feel the effects of inflation. Your money won't stretch as far and you'll have to make some changes to your budget. In theory, salaries and wages should rise to keep up with inflation so that workers can maintain their standard of living. Social Security benefits, too, are subject to Cost of Living Adjustments (COLAs) that take rising prices into account.
If your income rises by the same percentage as the inflation rate, your purchasing power is not diminished. It doesn't grow or shrink. If your income rises by a percentage greater than the inflation rate, you'll be able to afford more goods and services. This is the scenario most of us want. It makes us feel better to see our purchasing power growing over time.
Of course, if your income shrinks or disappears, you might be in trouble. Other people who feel the negative effects of inflation are those on a fixed income, or those who hold fixed-income investments while inflation takes its toll on their purchasing power.
For example, if you buy a fixed-income security like a CD with a 2% yield and inflation rises to 4%, you're losing money. In an environment where interest rates are low, it can be tough to beat inflation without buying stocks. Bonds, CDs and savings accounts will keep your principal intact but won't necessarily grow enough to keep pace with inflation. That means you're less likely to meet your retirement savings goals. Fortunately, an inflation calculator can help you figure out a target for your retirement investments in future dollars.
Although stocks bring risk and volatility, they also have a track record of providing inflation-beating returns over time. Investing in stocks not only helps you grow your retirement savings, but it also helps your retirement savings last throughout your entire retirement. It's important to have enough retirement savings that you won't be up all night worrying about inflation.
Once you're retired and out of the workforce, if your retirement nest egg isn't growing, there's not much you can do to preserve your purchasing power if inflation hits. That's why our retirement calculator takes inflation into account when figuring out how much you should save for your golden years.
This sums up how inflation affect each of us and if we are not prepared, creating good budgets to beat inflation, we will have money problems throughout this inflationary times.
Planning and budgeting is so very important to resolve financial pressures and problems within families. If you need to go over your budgets, contact me by sending me an email at: [email protected] I have been in private practice since 1984 and can walk you through the financial issues and resolve any conflicts that you may be having.
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