Page 60 - Book3E

If you can't afford to save in order to pay cash, you can't afford to buy on credit.
—Ron Blue
52
• An increase in the amount of money or credit available in rela- tion to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less. (Source: www.online-home-mortgage-info.com)
According to the website Inflation.com, we understand well how inflation works when we go to the grocery store and witness ever higher prices. Some might argue that if all wages and prices increased at the same rate, it would all balance out in the end. However, it’s important to realize that prices of various items all increase at different rates, so some people benefit while others suffer. Retired people or others on fixed incomes suffer the most because the cost of goods increases but their income stays the same.
What’s more, if you’re saving for retirement, your children’s education, or any other long-term objective, infla- tion can be a subtle but very real threat to your savings. Inflation rates have fluctuated over the years. Sometimes inflation runs high, and other times it is hardly noticeable. The short-term
changes aren’t the real issue. The real issue is the effects of long-term inflation.
Over the long term, inflation erodes the purchasing power of your income and wealth. That means that even as you save and invest, your accumulated wealth buys less and less, just with the mere passage of time. And those who put off saving and investing will be even deeper in the hole.
Historically, one of the best ways to minimize the affects of inflation is by investing in “growth-oriented” investment alternatives such as stocks, mutual funds, variable annuities, and variable universal life insurance. These alternatives provide the potential for returns that exceed inflation over the long term. While growth-oriented alterna-
Inflation—What Is a Dollar Worth?