I am old enough to remember when quarter waters were actually a quarter. When Little Debbie Snacks were 25 cents and when you could get two Burger King Whoppers for a dollar. I am not the oldest person but I’ve been around.
Today those quarter waters are likely close to a dollar and you’ll pay close to five dollars for a Burger King Whopper. Yes, inflation is a real thing and a dollar isn’t worth what it used to be.
The Consumer Price Index (CPI) is a generally used as a good measure of inflation. This index tracks how expensive things are getting over time and the theoretical spending power of a dollar during that same period. The CPI is released annually and was recently released in late May 2021.
According to the U.S. Bureau of Labor and Statistics (BLS), the CPI is up 4.2% in the last year (April 2020 – April 2021) and this represents the largest increase in the index since 2008. This is a substantial jump considering during the last year unemployment reached a high of 14.8% at the start of the pandemic (its come back down since then).
For little over a century, the U.S. historically has averaged a rate of inflation at 3.2%. This is important because to keep up with inflation, you’re salary would need to grow by this amount every year.
However this isn’t happening.
According to economic data from the U.S. Census bureau, the median household income in 1984 was $52,679. In 2019, it was observed to be $68,703. If salaries were keeping up with inflation over that period at an average rate, that number should be well into the low six figures, but its not.
So what does this tell us? Well, we need to make more money because inflation is outpacing the normal salary progression.
Depending on just one income to keep your standard of living and fund your retirement, may be a bad plan. Having multiple income sources however, specifically multiple passive income sources, is likely a better plan. So if you haven’t started thinking about investing or started investing, you need to.
As always if you have questions or concerns regarding creating an emergency fund, investing, real estate, insurance, or planning for the future, don’t be afraid to speak with qualified financial advisor. Smart Asset has a great tool to find an advisor in your area or feel free to email me (contact@surgifi.com) to help you on your path to financial independence.
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[…] Inflation is the highest its been since the 2008 financial crisis. At an average increase of 4.2%, the buying power of $1 continues to erode every year despite an increase in the median household income. […]