THE VALUE OF THE DOLLAR

In order to get ahead in today’s financial world, you must first realize the challenges you will be facing in the future.  You may discover that in today’s economy even the most basic concepts such as saving money is getting more and more difficult. You may feel the stress and possibly some guilt from not being able to save money. The problem, in many cases, is not a personal flaw, but more of a hidden challenge that you simply don’t see.

To get a clearer view and understanding of this challenge, let’s analyze the problem. If you have a dollar today, what is the rate of return needed to have the same buying power of that dollar just 365 days later? In order to solve this problem, you must understand the challenges that your dollar faces.

First, in an effort to make that dollar grow, it may be exposed to capital-gain taxes of 15% or higher. The dollar, over that same period of time, may be exposed to inflation. Let’s assume a 4% inflation rate. The government measures inflation by using 13 factors in the economic factors in your life that are not considered in the inflation evaluation. Factors such as owning a home, paying taxes and the cost of energy are NOT considered in determining the government’s inflation factor. These uncounted factors depreciate the buying power of the dollar. Depreciation of the dollars is estimated at about 6%.

Taking into consideration taxes, inflation, and depreciation to achieve the same buying power one year later, you will need to get a 12.8% return on the dollar.

This is why many Americans are finding it more difficult to maintain the standard of living that they may be accustomed to. They are also finding it harder to save money and plan for their future. The value of the dollar and its decline is important. Inflation, taxation, and depreciation are often overlooked in traditional thinking. Some of the solutions in reaching a successful financial future are really basic.

Simply avoid or eliminate the factors that can be harmful to you. All too often, your planning efforts continue to feed the problem that you should want to avoid.

 This educational material is provided by the Wealth & Wisdom Institute and Common Sense Economics, LLC.