Is Inflation really a problem?

Ask anyone who is financially literate, “Would you rather today’s money or tomorrow’s money?” and you may get one of many responses. It all depends on how each person perceives the question. As an example, one person may take the question literally to mean that it’s akin to the saying, “a bird in the hand in worth two in the bush”. Therefore they would say they prefer today’s money. Another person would interpret the question to mean that the value of present and future money is what’s in question; by this analysis, tomorrow’s money may be worth more based on your spending habits. Either way, where money, the past, present and future is concerned it can quickly evoke whether or not inflation is really a problem.

A true definition of Inflation

Most people would agree that inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Sounds simple enough, right? Yet so many people forever misunderstand, fear or are never quite certain how to best treat with inflation.

Inflation: the good vs the bad

Inflation is so often spoken of in a negative light that it’s quite easy to think that it has no advantages. However it can fuel economic growth, cause adjustments to real wages and also prevent a recession.

On the other hand, inflation reduces the value of savings and investments, leads to uncertainty and stability and can cause frozen wages and retrenchment. So really, if inflation is both good and bad then what’s the real problem?

The real problem with Inflation

The real problem with inflation is not inflation itself; it’s how the average person reacts (or not react to it). One real life example I experienced where inflation was clearly in play was in relation to the purchase of a cell phone. In 2004 the Motorola Razr retailed for $500US and I remembered desiring it badly. In 2017 I was able to get a new Blu smartphone for less than $10US. And it’s no surprise that 13 years later the cheap, Blu phone had way more features than than the Razr had back then. Moore’s law anyone?

Based on Moore’s Law, it has long been perceived that the transistors on a microchip doubles every two years and the cost of computers is halved. Therefore we can expect the speed and capability of computers to increase every couple of years. And the best part is that we will pay less for them.

Due to the above reasoning it can easily be seen why buying a cell phone 13 years later for 1/50th the cost would be a more practical investment. Because here lies the even bigger truth that’s so “in your face” yet consistently overlooked. That $500 spent 13 years ago may have actually been worth $1000 in today’s money. In comparison, the $10 that was spent on the Blu cell phone in more recent years (for a now better product) is beyond negligible.

Using Inflation to your advantage

Of course not every item enjoys the stark benefits of Moore’s Law. But once you understand the concept of inflation and how to use it to your advantage, making inflation work for you becomes a cakewalk.

I like using technology as an example on how to capitalize on inflation because it sets a foundation for better financial thinking to take place. Hands down, it’s going to be a challenge to find many other avenues besides technology to milk through inflation. But you only need to think just a little outside the box to find ways to profit in your everyday life.

Inflate your mindset, not your lifestyle

Almost every successful financial guru will tell you that to set yourself up for life there’s actually a surefire way. Make as much money as possible and spend the least amount necessary for a prolonged period of time. Do this long enough and you may even become filthy rich. It’s so simple yet the majority of people consistently find themselves doing otherwise to no avail

So you’re used to buying a particular brand of product each month and one day the price unexpectedly increases by 100%. What do you do? Just continue buying the same product without searching for suitable alternatives? What about junk food? Do you really need to spend hundreds of dollars each month on perishables that will poison you? Saying that it costs more to eat healthy so you eat junk is just an excuse. There are always cheaper, healthier options available of you look hard enough. And even if the aforesaid was true, consuming excess junk would likely lead to excessive medical bills in the future. This alone would undo any cash you once saved with junk.

The fact is people get lazy and prefer to just do what they want and worry about the inflated consequences after. By not frequently thinking of better and healthier ways to save cash or live life they indirectly allow themselves to become a slave to the concept of inflation.

The real solution

The real solution to treating with inflation is actually extremely simple: worry less about inflation and more about progression. The reality is that within a global economy inflation will continuously occur whether we like it or not. But you always have a choice. You can choose to sit and just watch prices for everything skyrocket over the years; or you can work on generating more income by establishing more financial assets.

Many people will actively look at the glass half empty and say things like, why save and invest for decades if the money is going to be worth much less in the future? But then one can also counter that with, why bother eating if you’re eventually going to die?

If you only focus on the bad then the bad is all you will see. Inflation or no inflation, one fact remains constant. You will always be able to easier make money with more money rather than if you had less or none. With more investments, over time inflation would become less of a problem and you will also set yourself up to build generational wealth.

So forget what others tell you about inflation and your money being worth much less in the future. While this is true, it’s also true that many people will never completely grasp the real problem itself. But the solution to that problem will always be to live the most frugal and sensible life we can after removing the most valueless traits from within ourselves.