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Inflation can be detrimental to those on a fixed income. With the price of gas rising, groceries are hard to find, War in Russia, and the job market changing, what do you do?
In 1913, Irving Fisher wrote in his book, The Money Illusion.
“We have standardized every other unit in commerce except the most important and universal unit of all, the unit of purchasing power."
Interest rates have been artificially low for a long time. And the government has been trying to raise rates at a pace that will not cause the economy to overheat. In the above cartoon, it jokingly, yet intelligently, breaks down our cognitive bias to prices. It illustrates the affect of inflation on our purchasing power. A +1% wage increase with a 0% inflation rate is better than a 5% wage increase with a 5% inflation rate, which will net 0 purchasing power growth.
Yes, gas prices are increasing.
But so are the income levels. So we need to make sure we make the right adjustments.
With that said, we have some decisions to make. Those who are invested and stay invested will have the advantage of hedging inflation. The money in their accounts has the potential to appreciate over time, allowing them to buy more goods at a future date. As opposed to a low interest rate savings account where inflation will dwindle their purchasing power.
For example: The Dollar Tree has raised their prices to $1.25 which means, that dollar you saved under your mattress, in an non-interest bearing savings account, in your cookie jar, or in your treasure chest, can no longer buy the same amount of goods, as it did just a few months ago. Same dollar, less goods. In an article on MarketWatch, Dollar Tree denies the increase was due to inflation and that the price increase was fueled by their intentions to offer a wider range of merchandise. Yet, with inflation being around 7.5% and the price increase is 25%...well, I'll let you figure that one out. So during this time, I want you to consider the following:
Determine your net worth to make sure it increases year over year
Review your allocation and risk tolerance
Focus on your overall expenses and don't just single out gas
If you want to learn more about the Money Illusion, Rex Nutting wrote a great article in light of this spike in gas prices. You can read the full article by clicking HERE.
Thank you for reading!
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About the blog:
Many Christians struggle with the seemingly conflicting views about our faith and the pursuit of financial gain. They were taught that poverty was piety and that a lack of money was the only way to truly detach themselves from the love of money. Our blog debunks some of those claims, teaches you that you can be rich and righteous, and at the same time fulfill your obligation to tithe and give to the less fortunate. We are dedicated to helping you become cheerful givers by organizing your personal finances, providing investment tips to help you create wealth, and encouraging you to create a gifting strategy that will make your family and God proud.
Meet the Author:
A.B. Ridgeway, MBA (info@abrwealthmanagement.com) is the owner and Christian Financial Advisor with A.B. Ridgeway Wealth Management. With a decade in the finance industry, his goal is to give believers clarity around the most confusing topic in the Bible, money, and tithing. A.B. Ridgeway helps tithing Christians become cheerful givers but unlocking their money-making potential, so they can prosper and be the great stewards of the wealth God has entrusted them with.
This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. This is strictly for information purposes. We recommend you speak with a professional financial advisor.