When most people think about the economy, they think in terms of Gross Domestic Product, or GDP. This is one way to measure the output of a local, national, or international economy. By measuring GDP, you can have a general sense of how one economy, such as that of the US, is doing compared to another economy, such as that of China. Currently, we are in an inflationary period. You can think of this as a hidden tax on your earnings and savings. Generally, 2% inflation is considered a healthy level. This means that if you deposit $100 in the bank, then after a year, it will have the same buying power that $98 would have had when you made that initial deposit.
As of December 15, 2021, the US Bureau of Labor Statistics (BLS) reports inflation in the US to be 6.8%. This is 3.4 times what is generally considered to be a healthy level of inflation. This means that if you earn $100,000 per year today, your buying power is the same as if you were earning $93,200 a year ago. In other words, you must increase your earning capacity by at least 6.8% just to have the same standard of living that you had a year ago, based on this number.
Real inflation may be different than the numbers that BLS reports. For example, retailers may raise prices at a higher rate than those reported, in order to make up for losses, or to anticipate further inflation in the future. So, if you paid $4 for a pound of beef in 2020, and are now paying $6 for that same pound of beef today, then you might say that you are realizing an actual rate of 50% inflation on the meat that you buy. Depending on your lifestyle and spending habits, the rate at which inflation impacts you may vary broadly.
With this in mind, it is very important that you take steps today to preserve your wealth, and to increase your earning capacity. During periods of inflation, some people will move their precious metals like gold and silver. In recent history, some people, banks, and other organizations have begun moving their wealth into cryptocurrencies. In addition, Exchange-Traded Funds, or ETF’s, are used as a system for investing according to the value of an asset like gold or silver, without actually holding those hard assets.
The key takeaway here is that you should begin researching different ways to preserve the value of the dollars that you have saved over time, and you should take steps to increase your income on an annual basis in order to maintain—and increase your buying power in the future.
As a first step, if you have not already taken the Employment Census survey, then complete it today. It takes 3 minutes, and you will gain immediate access to content and tools that will help you to improve your financial situation. You will also help our community to identify labor trends. This will enable Employment Census to provide the best advice we can, to help you with your professional objectives.