What is inflation and why should you care?

If you’ve ever wondered why things get more expensive, you’ll be interested to learn about inflation.

Inflation is the general and ongoing increase in the price of both goods and services. It’s why things get more expensive over the years.

It’s like when your grandma says, “When I was your age, going to the movies cost just a few dollars”. It’s hard to believe that prices were that low just a few decades ago. This is because every year prices go up, making a significant difference over the years.

Inflation is actually measured as an annual percentage increase.

So if you buy a chocolate bar and it costs $1.00 and the inflation rate is 3%, then in theory, the next year it will cost $1.03. Take a bite of a chocolate bar and enjoy it at today’s price as tomorrow it might well go up in price!

In the same way, rent goes up, phone bills go up and pretty much everything you pay for goes up!

People often complain about inflation or prices going up without realizing that wages and salaries usually go up too. The real question you should be asking is… is the pace of my income going up at the same pace or faster than the inflation rate? It is important that you ensure that your income increases.

This is also, why it is important to invest your money. If you stash your money in a checking account or under your mattress, it will be worth less in the future – because you won’t be able to buy as much with it today as in the future.

It’s a good idea to determine if your income has been increasing over the last few years. If you are an employee and you haven’t been looking at your pay stubs, pull them out and make sure you’ve been getting an increase. If you haven’t, you need to talk to your employer and ask if they can increase your salary to keep up with inflation.

If you are self employed, take a look at the prices of your products and/or services and if you haven’t increased them in a few years, it is time to increase the prices.

Posted on July 20, 2016