Inflation is the average increase in prices over time. It affects everything we purchase.
Essentially, if you take an average basket of goods, over time, the average price of this basket of goods increases. What you were able to purchase at the grocery with $100, 20 years ago is a lot different than what you can purchase today.
Numerically, your money is worth the same. $100 fifty years ago is still $100 today, HOWEVER, your purchasing power is a lot less. Numerically, it is still $100 but you can buy a lot less with it today compared to 10 years ago.
If you make $50,000 and inflation is eating away at your salary. The same $50,000 will not have the same purchasing one year from now. Essentially, you are becoming poor although your salary is unchanging because you the cost of everything else is increasing except your salary
How do you combat inflation:
- You have to invest your money so that you receive a return on investment above the inflation rate. (stocks, bonds, mutual funds, treasury, real estate) Example, if I invest $10, can I get a return of $15?