Have you ever had the feeling that you had your money situation totally figured
out and then one day you realize maybe things aren't as rosy as you initially
thought if yes don't worry you're definitely not alone and in this video
i'll be showing you the one thing that can ruin you financially one financial
phenomenon that is crippling many people's financial lives comes down to
one simple word inflation inflation is the decrease in
the purchasing power of a given currency over time or an increase in the general
level of prices usually expressed as a percentage and it seems rather harmless
to most people but later in the video i'll share with you why it is crippling
your finances every single day but first let's talk more about what inflation is
and why it exists while it is easy to measure the price
changes of individual products over time human needs go far beyond one or two
such products individuals need a large and varied set of products as well as a
range of services to lead a comfortable life these include commodities such as
grain fuel metals and utilities such as electricity and then also transportation
also services such as health labor and entertainment are necessary
inflation aims to measure the overall effect of price changes for a
diversified set of products and services and allows for a single value
representation of the increase in the price level of goods and services in an
economy over a given period of time moreover there are multiple factors that
can cause inflation in economy usually inflation results from an increase in
the production cost or an increase in demand for products and services i will
detail other important factors in this video but first make sure that you smash
the like button if you want to avoid the harmful effects of inflation yourself so
one primary cause of inflation is cost push inflation this occurs when prices
rise due to increases in production costs such as wages and raw materials
although the demand for goods does not change the supply of goods decreases due
to high production costs as a result additional production costs are passed
on to consumers in the form of higher prices for final products also one of
the signs of possible cost inflation can be seen in rise in commodity prices such
as oil and metals as they are the main production inputs for example if the
price of copper rises companies that use copper to make their products may
increase the prices of their goods if the demand for the product is
independent of the copper demand the business will pass on their higher raw
material cost to the consumers the result is higher prices for consumers
without any change in demand for the products consumed wages also affect the
cost of production and are often the largest expense item for businesses when
the economy is performing well and the unemployment rate is low labor or worker
shortages can occur companies can also raise wages to attract qualified
candidates resulting in increased production costs for the company moving
on natural disasters can also raise prices for example if a hurricane
destroys a crop of maize prices may rise in the economy as maize is used in many
products and another form of inflation is demand pull inflation which results
from strong consumer demand for a product or service when there's an
increase in demand for a wide range of goods in an economy their prices tend to
increase while this is generally not a concern
for short-term supply and demand and balances sustained demand can resonate
throughout the economy and increase costs for other goods consumer
confidence tends to be high when unemployment is low and wages rise
leading to more spending that more spending can lead to inflation as the
demand for a particular good of service increases the available supply then
decreases when less product is available consumers are willing to pay more to get
the product and this is just basic economics now whether you realize it or
not companies play a major role in inflation especially if they produce
popular products big corporations with some form of monopoly like apple come to
mind these companies may raise prices and consumers are willing to pay the
increased amount companies also freely raise prices when the item for sale is
something that consumers need for their daily lives also the housing market is a
factor in inflation for example the housing market has seen ups and downs
over the years if homes are in demand as the economy is experiencing an expansion
home prices will rise demand also affects the buy products and services
that support the housing industry construction projects such as timber and
steel may become highly demanded due to the demands for homes furthermore
central banks can adopt an expansionary monetary policy which might lower
interest rates this is when central banks decide to reduce the cost of
lending to banks which allows banks to lend more to consumers and businesses
the increase in money available throughout the economy leads to more
spending and demand for goods and services then yet again inflation can
happen so now you're well versed in how inflation works so let's get personal
and i'll explain how inflation erodes your wealth as a currency depreciates
prices rise and your money buys fewer goods and services this loss of
purchasing power affects the general cost of living for the common man and
ultimately leads to a slowdown in economic growth the consensus among
economists is that sustained inflation occurs when a nation's money supply
growth outstrips economic growth inflation can occur in virtually any
product or service including needs-based expenditures such as food housing
utilities and medical care just as a necessity such as cosmetics jewelry and
automobiles when inflation becomes rampant in an economy the prospect of
further inflation becomes a paramount concern in the consciousness of
consumers and businesses no we cannot avoid every disaster that will cost us a
penny job loss a medical emergency you can't afford a destroyed car a flooded
house these happen to people every day fortunately we can minimize the risk of
financial ruin by not stacking the deck against ourselves central banks of
advanced economies generally monitor inflation for example the u.s federal
reserve has an inflation target of around 2 percent and adjusts monetary
policy to combat inflation if prices rise too much or too quickly inflation
can be a cause for concern because it makes money safe today
less valuable tomorrow inflation erodes the consumer's purchasing power and can
even affect their ability to retire for example if an investor earns five
percent on stocks and bonds and the inflation rate is three percent the
investor only earns two percent in real terms up until this point in the video i
know inflation is seeming to be unavoidable on your journey to get rich
but don't worry because in a minute i will tell you how to best combat this
financial foe so keep watching now however while consumer benefits a little
from inflation investors can enjoy an increase if they hold assets in
inflation-affected markets for instance those who invest in energy companies may
see a rise in stock prices if energy prices are rising some companies reap
the fruits of inflation with no regard to the masses they can charge more for
their products as a result of increased demand for their goods if the economy is
performing well and demand for housing is high home builders may charge higher
prices to sell homes and as much as everyone knows the negative aspects of
inflation greed among businessmen causes them to indulge in shady dealings
inflation can provide businesses with pricing power and increased profit
margins if profit margins are rising it means that the prices companies charge
for their products are increasing faster than the increase in production costs
more so some business owners may deliberately withhold goods from the
market and allow prices to rise to an appropriate level on the whole companies
can suffer from inflation if it is a result of an increase in production
costs companies are at risk if they cannot pass a higher cost to consumers
through higher prices to combat this the appropriate monetary authority such as a
company's central bank takes the necessary measures to manage the supply
of money and credit to keep inflation within permissible limits and keep the
economy running smoothly so how do we fight inflation theoretically monetarism
is a popular theory that explains the relationship between an economy's
inflation and the money supply for example after the spanish conquest of
the inca and aztec empires large amounts of gold and silver flowed into the
spanish and other european economies as the money supply increased rapidly the
value money fell contributing to the rapid rise in prices thus you can see
that inflation happens and is measured in various ways depending on the types
of goods and services handled now that we know the causes stick around as i
delve into the ways to fight inflation in this video one way you can fight
inflation is by investing in stocks despite the lack of confidence that most
people express about stocks owning some stocks can be a very good way to fight
inflation think your home as a business if a company can't properly invest its
money in projects that will generate returns above cost it will also fall
victim to inflation the fundamental premise of business success is that
companies will sell their wares at increasing prices which will lead to
higher revenues earnings and inevitably stock prices some of the best stocks
don't during inflation will be in companies that naturally increase their
prices during periods of inflation commodity sourcing companies are an
example products such as oil grains and metals enjoy pricing power during times
of inflation prices for these items tend to rise unlike for example the price of
a computer that is subject to manufacturer and distributor price
adjustments still price increases are not enough to hedge inflation if a
company faces increased expenses price increases the owner not enough to
sustain equity evaluation for this reason market second benefit from the
increase in food prices can also suffer from the increase in the cost of goods
sold look into investing in businesses that have the strongest profit margins
and often the lowest cost of production and such as commodity firms or
healthcare companies finally never underestimate the value of dividends
during periods of inflation dividends increase a portfolio's overall return
another way to stay afloat during inflation is to invest in a home real
estate is always a good investment when done right this is good insurance
against inflation because most of the time the producers can pass down the
high cost to the final consumer while experienced real estate investors can
find hidden values and properties the average person should focus on buying a
home with the intention of holding it even for a few years real estate
investments often do not yield returns within a few months or weeks a long
waiting time is required for the values to increase so if you take a fixed rate
mortgage you pay off your future debt in cheaper currency if rates go up but if
rates go down you're still responsible for the fixed amount and several factors
must be considered to choose the best mortgage option like land home prices
tend to increase in value on average from year to year and it's true that
real estate bubbles are often followed by periods of corrections sometimes
causing homes to lose more than half of their value still on average house
prices tend to increase over time offsetting the effects of inflation
moreover investing yourself remains the best investment hence it's only
reasonable that it can help combat inflation too the best investment you
can make to prepare for an uncertain financial future is an investment in
yourself simply put you need to make yourself more valuable and increase your
future earning power so how is this done allow me to elaborate this investment
starts with quality education and continues with keeping skills up-to-date
and learning new skills that will match those most needed in the not-too-distant
future being able to keep up with the changing needs of a business not only
protects your salary against inflation it also protects your career against
recession in conclusion it's a waste of time to pray or hope inflation never
happens but you can take steps to position yourself properly and the best
way to do that is by investing hey it looks like youtube thinks this next
video is the one that will change your financial life forever give it a watch
and let's see if they're right