I Got This Mattress In Italy
Through high school and college, I have worked as a busboy, a dishwasher, a telemarketer, a pizza delivery driver, a radio DJ, a server, and a taxi driver. I’m glad to have experienced such a variety of jobs, but I needed to work more than I preferred. Not to judge my parents, but they, like too many of us, did not understand money, its value, how to build wealth, and how to develop a financial plan.
If my parents invested $50 a month for me, then by the time I turned 18 years old there would have been money for college, a down payment on a house, or business starter fund. Would it have secured a comfortable life for me? No. Would I have been given a leg up, reduced debt in early adulthood, and knowledge of what wealth can do to benefit the next generation? Yes, yes, and yes!
In case you checked, $50.00 a month over 18 years would become about $30,000. Not a lot by today’s standards, but when I was a child (some 30+ years ago) the value of a US dollar was more than double what it is today, nearly triple in my early childhood.
Inflation is the first real lesson to understand. Inflation is simply understood as prices go up because the purchasing power of the dollar goes down. The value of a dollar is less each year. My mother often talks about how cheap food used to be, “When you were kids, I fed the family for a week with only $100!” I’m sure we’ve all heard this.
Reality check: Money isn’t worth what it used to be.
The value of money is always changing, mostly in the downward direction. This is a good thing. Why? Wouldn’t it be better if the value of the dollar went up? Oddly, no. If that happened, what it really means is that prices are going down because of decreased demand for food, services, and goods. Decreased demand means a shrinking economy. That’s not good.
Think of inflation and the value of money as something in your home. If the demand for food suddenly went down, that means someone moved out or died. Your money would be worth more, but as the result of a loss. Let’s consider a more positive thought: as children grow, they demand more food. There may be periods of unstable increases or decreases in their appetite, but their overall demand for food should increase through the years.
Zooming back out: We want an economy that has stable growth and low inflation. When inflation and demand are low, the Federal Reserve literally makes more money/credit available at lower interest rates. Then, millions of people start spending money on houses, cars, 80-inch TVs, and vacations. Eventually, inflation comes back up again, the Federal Reserve starts taking money out of the economy, buying slows down. This is the dance. Sometimes good, sometimes bad, but inflation is always happening.
The value of the dollar is going down every year. You cannot beat inflation by putting money in a checking or savings account. Yes, there is no risk of losing any of the dollars in the account, but you are losing purchasing power because it is not growing to outrun inflation. You might as well put your money in a mattress!
Today, commit to investing a regular amount of money for the future to beat inflation and have earnings that make funding college, buying a home, or starting a business a financial reality.
