I remember pulling up to a gas station several times last year, shocked at prices climbing toward $5.00 per gallon. Prices were rising so fast on several occasions I noticed they were higher on the way home than they were in the morning. Around that time I also reviewed my credit card bill and was shocked that we were paying over $350 per month for gasoline - and my commute is only 2.6 miles! We discussed several ways we could change our lifestyle to live within our budget. Though last year's gas price spike was caused by speculators, it provided a real ckly understood the concept of inflation - because we felt and saw it. We had to make conscious decisions about where we wanted to spend our money.
When oil prices collapsed, along with the banks, we stopped worrying about inflation until government bailouts, stimuls packages, and health care proposals started to heat up the discussion again. Everyone began asking the question, "where will inflation take us now?"
But here's the real reason why you need to worry about inflation now: It can kill your retirement savings and investment plan.
There are several concepts about inflation you need to understand: 1) it's hard to notice it sneaking up on you; 2) it destroys your standard of living; 3) you need to protect your investments from it. If you understand these concepts, you'll be ahead of most people who only worry about inflation when it hits the headlines.
Inflation sneaks up on you
The effects of inflation are just like slow and steady weight gain. If you gain 3 pounds over the next twelve months, you won't notice it. If you add another 3 the following year, you might not even notice that. But if you continue the pattern for ten years, you WILL feel that extra 30 pounds, and after twenty years, an extra 60 pounds is detrimental to your health.
Although inflation has remained mild since 1991, it has averaged between 3 and 4 percent since 1926, with a few periods where it spiked over 4%. It's always there, whether it's in the news or not - and whether you notice it or not. It's like having a hidden indoor plumbing leak - a slow and steady drip that's silently and blindly causing damage.
Inflation destroys your standard of living
Last year's gas prices demonstrated how inflation kills.