Besides the basic necessities of life, such as food, shelter, clothing, transportation, cell phones, ISPs and cable, your money may also be disappearing into taxes, credit card debt, health, life and auto insurance, college tuition, vacations, restaurant dining and other small but costly extravagancies that make life worth living.
Your standard of living
If you have plenty of money you can easily maintain or even increase your standard of living. If you do not have plenty of money you could easily find it difficult to maintain your standard of living or even find your standard of living decreasing. Why? Because most things in life become more expensive. Year after year. Prices of things tend to go up over time but rarely do they go down. It's called inflation.
What causes inflation?
There are a number of factors that can cause the prices of goods or services to rise. These include increased labor costs (workers want raises and more benefits), increased material costs, increased transportation costs, increased government regulations and, of course, good old fashioned greed. That causes the producers and suppliers of goods and services to raise their prices.
Who pays for inflation?
You, the consumer. Producers and suppliers of goods and services whose costs have increased pass along those increased costs to the consumer (you) in the form of higher prices.
The inflation rate
Normally, basic inflation (the price of the things you have to have or want to have) increases at least 5% a year. Regardless of what the government tells you. An inflation rate of 5% a year means that every 10 years things will cost 63% more. Prices will rise over 60% - minimum - in a decade. And that's just at 5% basic inflation. Recently, at my local supermarket, the price of a head of lettuce jumped 25% ... in 1 week. That's an inflation rate of over 1200% on an annualized basis! My medical insurance premium jumped 22% in 1 month ... just because I had a birthday! That's an inflation rate of over 250% on an annualized basis!
What does inflation mean for you?
A basic inflation rate of 5% means that if you are not earning at least 50% more than you were 10 years ago your standard of living is lower today! Plus, today people are working harder and longer ... and nobody likes to work harder and longer only to see their standard of living go down.
Inflation fighting
If you want to maintain your standard of living, if you want to be able to afford more than just the basics of life, the fact is that you have to make at least 5% more money every year - AFTER taxes - just to stay even! And, because of inflation, if you want to be able to afford the really good things that life has to offer you have to earn or have a lot more money than that!
The top 3 ways to deal with inflation:
1. make more money
2. cut back on non-essential expenses
3. accept a lower standard of living
Where does your money go? Now you know. It goes to inflation. Inflation ... you can either beat it or eat it.
Andrew Lawrence is a former Wall St professional who has managed money market portfolios of up to half-a-billion dollars, understands money, and now spends his time helping people get more of it, at InstantMoneyClub.com