Inflation. We all have heard of it. I believe that most do not actually understand what it is though. The first time I heard about inflation I was in 7th or 8th grade. My older brother was talking about it. He described to me that inflation is when prices rise. Sounds familiar right? I can vividly recall wondering “who is raising the prices?” and “why don’t they just stop raising the prices?” I pictured it like a basketball and somebody was pumping the basketball with too much air. Who is doing the pumping and why don’t they just stop?
Later on in life (about a decade later) I finally learned what inflation really was. It was not an increase in prices. It is actually a devaluation of a currency. It is when a currency begins to lose it’s buying power. A symptom of that can be increased pricing, but the root is 100% the decrease in purchasing power. This decrease in purchasing power is one of the most dangerous risks to your wealth. It is a hidden tax. Here is why.
1. The U.S. Dollar is controlled by a Central Bank. What does that even mean right? I’ll break this down for you nice and simple. A central bank is a private bank that controls the interest rates and currency supply of a country. Central banks often artificially create more money, artificially manipulate interest rates, and allow for fractional reserve banking. Simply put: a central bank can insert monopoly money into an economy in multiple ways, whenever they choose to. This monopoly money mixes with the real money. Because of that, it dilutes the purchasing power of the real money. It’s like watering down Kool-Aid.
2. We work for those dollars. We work for money. When we work for money and the money is diluted, that means we are working harder and harder for less and less money each year. It’s like paying a tax we don’t see. Why is it a tax? Because the purchasing power of our dollar was reduced for the benefit of the government via the printing of artificial currency.
3. We pay taxes on those dollars. We work and pay taxes. These taxes also go to the government and fund deficit spending. So we work and earn less money due the hidden tax of inflation, then we are taxed a second time on our income statement, and the money from those taxes feed the machine that taxed us in the first place.
4. We give our money to the bank. The bank gets our deposits of cash and they put it into the computer systems they use and the dollars turn into a digit in the system. $1.00 deposited can be loaned out to 10 different people all at once. So if you deposit $1,000, the bank can give out $10,000 based on your $1,000. This creates more fake money and further reduces our buying power because the currency is diluted once again. This cycle repeats over and over.
The result? If you had $1.00 in 1913, today you would need over $24.00 to have the same buying power as that $1.00. It isn’t because bread costs more. It is the same ingredients and the same process. It is because that dollar is worth-less. You need 24 pieces of paper to do the same thing 1 piece of paper used to accomplish. Over the last 100 years, inflation has averaged at about 3.15% per year. This means that every single year, you need to be earning 3.15% more money than the year before, just to maintain.
My clients have this handled. Do you? In fact, it is one of the first topics we discuss. The only solution to this is to earn money at a rate faster than the rate it is being devalued. Initially, you will do this with your own income. Eventually, you will max out what you can accomplish on your own and you then must get the income from additional sources. These sources are called assets. These assets produce income. This income allows you to stop trading your time for little green piece of paper that goes down in value every single year.
Own Your Potential,
Jerry Fetta helps his clients make money, keep it, and multiply it.
He believes everyone should own their potential. He believes you were not created to spend 40+ hours per week serving the 40-year-to-life sentence trading your precious time for money just to live in mediocrity.
However, the truth is that time and money must be exchanged. It just doesn’t need to be you making the exchange.
Jerry helps his clients create wealth that exchanges time and money on their behalf.
His clients see a 30% increase in income, a guaranteed increase in savings rate, and 8-12% fixed annual returns on their assets in the 1st 90 days of working with him.