It’s The Money That’s Not Worth The Money

Inflation steals the value of the services you offered someday in the past. The money you did not spend immediately then buys less now.

Inflation serves debtors better than lenders. If inflation is to become an issue for us, then some debt may be realistically part of a balanced portfolio. It will depend on the “real Interest rate” cost. What you pay minus tax savings minus inflation. If negative, then the cost is acceptable.

Think about it and be very careful.

The Cost of Living in 1938

Source: Google

We all adapt to this by having a conversion method that relates to when you first began paying attention to prices. From 1938 we might choose 20 to 1 as a reasonable idea.

What we would find is some things have changed more than we expect and some less. That difference is when we look regardless of value. For example, a car at about $17,200 today seems very low priced but certainly a $17,200 car today, despite being very cheap would provide far greater value than the car at $860 in 1938. Can we assume the value of Harvard tuition today is vastly greater than its adjusted cost? Twenty times $420 is a tiny fraction of the current price. 

The idea

Numbers don’t mean anything without context. The context could be time, or place, or social constraints.

You cannot compare things without adjusting for their context. We do it all the time and should perhaps be a little more serious about it. Converting from Celsius to Fahrenheit when we go from Toronto to Florida is useful. A ten-foot pole and a 3.05-meter pole are the same things. We automatically convert from Euros to dollars when in Europe.

We each have a context and must attach it to the surroundings. Comparing numbers without context leads you far astray when making decisions or establishing policy.

I help business owners and professionals understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

Please be in touch if I can help you. 705-927-4770

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