Learn How Inflation Impacts Your Future
Ok, fine. It might not sound as sexy as taking a pole-dancing class to whittle your waistline. But as far as New Year’s resolutions go, if one of yours is to get more financially savvy, then you DO need to know a bit about inflation and how it impacts YOUR money. Luckily, our fabulous friend Linda Descano, President and CEO of Women & Co., offers some straightforward facts to help explain how inflation affects our financial futures!
Basics of Inflation
Inflation refers to the increase in the price of any goods or services. The most commonly referenced measure of that increase is the Consumer Price Index (which you probably hear mentioned all the time on the news but may not have been sure exactly what it meant). The CPI compares the current and past prices of a sample ‘market basket’ of goods from a variety of categories to measure prices over time. You probably do your own CPI every time you go to the store! If you noticed a price change in your arugula from last month to this month, you’ve got the start of your own personal CPI in the making…
As Linda points out, an inflation rate of 3% might not seem threatening — until you consider the impact it can have on purchasing power over the long term. For example, in just 20 years, 3% of annual inflation would reduce the value of today’s dollar to just 55 cents. Which means, every year the dollar is worth leas, and in 20 years, it will cost you almost twice as much to purchase the same goods and services as it does today! –Suddenly, you can see the big impact of a small number…
Make The Personal Link
If you are a long-term investor (or if you hope to become one!), it is important to think about the effect rising prices can have on the value of your assets. While past performance is no guarantee of future results, stocks have historically provided higher returns than other types of investments – and beaten inflation by the highest margin – over long periods of time. Stocks do involve greater risk of short term fluctuations than many other types of investments, but a long-term time investment time frame may help you withstand short term ups and downs.
When figuring out your retirement income needs, remember to plug in an extra 3% per year to account for inflation- as this may help you calculate a better estimate of your retirement budget. If you haven’t considered inflation’s impact yet (and chances are it’s not top on your to do list today…) you should set up a meeting with a financial professional to review – or create- a retirement plan that accounts for the ever changing future and your specific needs.
If this all sounds a bit overwhelming, don’t worry! Check out our Fab & Fru Retirement Planner to help get you started. For more information, and to learn the questions that you should be asking yourself now, visit Women & Co and download their quiz, “Are You Taking The Right Steps Toward A Comfortable Retirement?” . Just by asking yourself a few simple questions (and answering truthfully), you’ll be amazed at how quickly you can start building the foundation for your strong financial future!| Print