What Is Inflation?
I'm hearing a lot of talk about inflation right now, and I'm sure you are too. But a lot of people don't even understand what inflation is.
I'm not even going to pretend that I know exactly what it is because it is a fairly complicated thing. It's a concept people probably do doctorates on, but at it's most basic form we know inflation is the cost of things going up over time. I remember when I was kid, a can of pop cost $0.50 and now it's $1.50, and I think the cans have actually gotten smaller to help hide the price increase.
But it's is not just the price of things going up; inflation is also the value of our money being worth less. One of the biggest reasons it's being talked about right now is because governments around the world, not just in Canada, have been printing money like crazy and introducing huge amounts of money into the system. When they create money out of thin air like that it loses it's value. There's more of it out there and therefore each one of those dollars are worth less and it takes more of them to buy the same thing.
Over the long run that can have really big implications and obviously you can see short term implications like the price of gas and other things going up. What that really means is that what used to cost you $1,000 per month in retirement will cost you $2,000 per month further down the road because the cost of everything keeps going up while the value of every dollar keeps going down.
So, inflation is an important thing to understand and it's a really important thing to plan for.
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