Follow
Today’s money lesson is about inflation. It may sound boring, but inflation can be a pretty powerful financial freedom fighter for the woman who doesn’t know about this sneaky saboteur of money power.
Over the past few years I have been on a relentless pursuit to end migraine headaches that I have tolerated for years. One of the many potential solutions I tried, and the one that finally worked, was changing my diet.
When I changed my diet, I began eating sweet potatoes several times a week. It turns out that eating well costs a lot, but it’s definitely a priority in my spending plan, as it is for many.
Interestingly, this health habit led me to the money lesson for today’s article.
Organic sweet potatoes are my preference, and these can usually be found at Whole Foods Market. Being a person with a fondness for numbers and money, (not math, or science necessarily, just numbers, truth be told), I noticed that the sweet potatoes were consistently $1.99 a pound for as long as I can remember.
You can imagine my shock (ok, maybe shock is too strong…disdain?) when I saw that the organic sweet potatoes were $2.49 a pound last week.
The first thought that came to my mind was: inflation! This is the perfect Financial Woman money lesson of that dreaded culprit that eats into the value of our money.
While inflation may seem like one of those boring and distant economic terms, it’s one that every woman should consider in creating long term financial freedom.
Here’s the scoop. The historical rate of inflation is about 3%.
Not to complicate the matter, but sometimes there is no inflation, or there’s the opposite of inflation, but we won’t go there since regular ole inflation is most common.
Here’s how simple it is…and how important knowing about inflation is for you to have financial freedom…
If my $10 bought 5 pounds of organic sweet potatoes last year, and this year that same $10 only buys 4 pounds of potatoes, you can see how this could be a problem, especially if this went on for years and years.
How Inflation Relates to Having Financial Freedom
If you retire with the plan to live well on $20,000 a month for the next 20 years, you just need to know that there is a very high probability (one of my favorite Financial Woman words) that $15,000 will buy less and less every year due to inflation.
In fact, even if we don’t use a compounded formula and just take the historical inflation rate every year of 3% times 20 years, your money will buy 60% less at the end of 20 years. That’s a lot of money power. Ouch!
The great news is that there are investments you can make that do not lose value due to inflation, but that’s another money lesson entirely.
The money lesson here is to simply know that inflation exists, so you can take care of yourself financially both now and later.