Have you been to Starbucks recently? A venti coffee was $2.25 earlier this year. Today a venti coffee is $2.35. That is a seemingly harmless 4.4% increase.
Take a look around, many food products are at all time highs. Gasoline is also reaching new heights, and there doesn’t appear to be any relief in sight. I recently came across a pamphlet which illustrated the cost of goods and services as they were in 1975. The list included stamps, movie tickets, rents on lodging, gasoline, and a new car. I then compared those five items, 36 years later, at today’s prices. The average inflation rate over this period was about five percent.
What is the significance of the five percent?
You will need to have a minimum of five percent rate of return, on your wealth accounts, or have your income increase by that amount, just to maintain your current lifestyle. This is assuming inflation keeps at the same pace over the next 36 years.
- A person with a lifestyle (consuming) $100,000 annually will need to replace their income with $163,000 in 10 years, and $235,000 in 20 years, just to keep pace with inflation.
- The buying power of $100,000 will only buy goods and services of $60,000 in 10 years, and $36,000 in 20 years.
Do you fully understand the impact inflation will have on your finances? Inflation is as inevitable as it is inescapable, and it is crucial that you understand its effects. With each of my clients, I make a point to illustrate the historic inflation rate for their lifespan so we can create a strategic plan that takes inflation into account and better protects your current and future lifestyle.