Basically every year, your money is worth less than it was the year before. Meanwhile, prices go up. This process is known as inflation. While there have been cases of deflation throughout the US’s history, those are considered to be exceptions to the rule. When looking forward to the future, it’s always best to assume that the value of money is technically decreasing.
Though it sounds like a terrible thing, it’s not all bad. For example, it decreases the value of debts. However, that means it also decreases the value of savings, stocks, and more.
That’s why it’s very important that you remember inflation when it comes to your personal finances.
Raises are Key in Combatting Inflation
Almost everyone would like to make more money, but when it comes to combatting inflation, raises aren’t just a welcomed reward; they’re a necessity.
If you’re getting the paid the same thing you were two years ago, you’re actually making less money.
Let’s say you were making $50,000 a year in 2017. In 2019, that same $50,000 is actually only worth about $47,800 in comparison. Regular raises are crucial to keeping up with the rise of inflation, as well as the cost of living. If you haven’t been receiving a raise, it might be time to either talk to your boss or look elsewhere for a job.
Inflation Isn’t Quite the Same as Cost of Living
Though the two are related, inflation and cost of living are not the same thing. Inflation measures the value of the dollar against goods, services, and more. It is a very big-picture term.
Cost of living, on the other hand, averages food, housing, transportation, taxes, and healthcare in a specific area. Cost of living focuses specifically on where you are, and so, it can have unique fluctuations. For example, if a city becomes more desirable to live in, cost of living may rise in that area beyond general inflation.
At the same time, if you own property in said area, the value of that property will likely go up.
Inflation Has a Big Impact on Retirement
Because retirement is (hopefully) planned decades in advance, inflation plays a big part in it. Most likely, a dollar will be worth quite a bit less in 20-30 years. Meanwhile, it’s fair to assume cost of living will go up.
That’s why retirement should be multiplied against an estimated inflation rate based on the year you plan to retire. This is yet another reason why retirement planning is so important.
Leveraging a Financial Advisor to Protect Against Inflation
Inflation factors into every area of finances, from stocks to property to savings and beyond. Calculating it into your plans can be tricky. That’s just one area where a financial advisor can help out. With a certified financial advisor on your side, you’ll have someone who is aware of market changes, inflation rates, and more.
They’ll help you factor that into every part of your financial portfolio. For financial planning and wealth management in Springfield, Ohio, contact KB&P Partners today!