Inflation: The Silent Tax on Your Money

Remember when a movie ticket cost $5? That's inflation. It's not just prices going up; it's your money going down.

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See what $100 today will be worth in 20 years.

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How Inflation Works

Inflation is the rate at which buying power declines. If inflation is 5%, a loaf of bread that costs $1.00 this year will likely cost $1.05 next year. It sounds small, but over decades, it destroys wealth stored in cash.

The Rule of 72 (In Reverse)

Just as the Rule of 72 calculates investment growth, it calculates purchasing power loss. At 4% inflation, prices double (and your cash loses half its value) every 18 years (72 / 4).

Why "Safe" Savings Aren't Safe

Leaving cash under a mattress or in a low-interest checking account guarantees a loss. To stay wealthy, your money must compound at a rate higher than inflation.

Wage Stagnation

If your boss gives you a 2% raise but inflation is 3%, you essentially took a 1% pay cut. Negotiating salary based on inflation data is critical for career growth.

How to Protect Yourself

  1. Invest: Stocks, Real Estate, and Gold often track or beat inflation.
  2. Fixed-Rate Debt: Inflation benefits borrowers. If you have a fixed-rate mortgage, you pay back the loan with "cheaper" dollars in the future.
  3. Avoid Excess Cash: Keep an emergency fund, but don't hoard cash beyond what you need for stability.

Inflation FAQs

Central banks (like the Federal Reserve) typically target an inflation rate of 2% per year. This low, stable rate encourages spending and investment without destroying purchasing power too quickly.