Twenty years ago, an average cup of coffee would have cost you a little under $2. Flash forward to today, that same cup of coffee will cost you nearly double the price. This is due to inflation which occurs when the prices of goods and services increase. Many factors can cause inflation to rise such as a high demand or low supply of products or services. With ongoing changes occurring in the market, now is the perfect time to check out these 4 ways inflation affects your finances.
Purchasing Power
A dollar today is worth less than it was a few years ago, which means that the price of goods and services has risen to make up for the loss of value. This can happen when there’s more demand for products, and other goods such as a meal or groceries can cost you more money.
Savings
Since the value of a dollar decreases during inflation, your money in the bank could be worth less than it was when you first put it in your account. Your money’s purchasing power can deflate while you’re saving it if the interest you’re making is less than the inflation rate, but don’t worry, there are other ways you can prevent your savings from decreasing in value such as investing.
Investments
Since inflation occurs at an average rate of more than 2% annually, you can invest money to possibly get a greater return over time. If you’re currently investing, your investments could increase in value and be worth more today than they were in previous years.
Your Home’s Value
When inflation rises, your home’s value may increase and you may be able to quickly build equity in your home by doing absolutely nothing! Your home’s value can rise significantly and if you choose to sell your home during this time, this is when you can get the best bang for your buck.
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