Henry Ford Sr. once said, “It is well enough that the people of the nation do not understand our banking and monetary system for, if they did, I believe there would be a revolution before tomorrow morning.”
The most devastating of all taxes is the inflation tax because it causes an effect on everything from prices in a grocery store to the value of your money and no one can hide from it.
Do you think the economy is a huge complex chess game? Do you think investments are only for high-powered financial wizards like Jim Rogers or Warren Buffet? Well, that’s your first mistake in investing.
In North America, the savings rate is at very low levels, especially among the 18-29 demographic. Although interest rates are at historic lows – you can also call it Japanese levels – it is still crucial to save and invest your money. However, the important question is: how can I protect myself from inflation.
No one can completely hide from inflation, but there are steps to take to hedge inflation.
First Step – Investigate your finances
Sit down with a cup of (insert your beverage) and take an in-depth look at your financial statements to try to determine your assets, debt and net worth.
In the end, create a two-sided budget: on one side, write down your living expenses, income and your current account balances. On the other side, once you have figured out how much extra cash you will have, create your monthly savings projections.
At this point, determine short and long-term goals for yourself.
Second Step – Research, research and research
Research the various savings accounts out there. Some banks can offer you a meaningless 0.05 percent interest rate, while banks, such as ING Direct, can offer you nearly three percent on your savings account.
Numerous banks now offer the feature where you can save as you spend; they take money from your purchase and put it towards your savings account. This is a good feature and will assist you in your savings goal.
Get a general understanding of financial terms to ensure that you know what you’re doing. The Investopedia is an excellent start as it provides simple and in-depth definitions for key financial and investing terms.
Third Step – It is time to protect yourself from inflation
By now, you are most likely savvy enough to start protecting yourself from inflation.
The actual definition of inflation is: a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.
The rising cost of rice, bread, gas, energy, et cetera, is a result of the nation’s central bank increasing the money supply.
Open up a mutual fund account that gives you access to real assets, such as commodities (corn, gold, oil). This way, you’ll accumulate a significant sum over the next 10 to 20 years because commodity prices will continue to rise and they are real unlike bonds.
The next step is to consider acquiring precious metals, such as gold, silver, copper and platinum. Although gold persists in making record highs, silver is still 25 percent off from its all-time high. Some bullion experts agree that silver could reach $100 within the next decade.
There is a chance to make profit with bullion, but the key thing to remember is that the reason to own precious metals is to have a hedge against inflation.
Once you become a little more knowledgeable in investing, attempt to broaden your investments to Asia and the Pacific. The Western world is accumulating trillions of dollars in debt and the United States dollar is on the verge of collapse.
The best option to avoid inflation is to expose yourself to nations such as Singapore, China, Taiwan, Australia and New Zealand. If you want to analyze inflation, compare the U.S. dollar to any of the aforementioned currencies and you’ll see a huge difference. It is also important to note that a lot of these nations have low debt volumes.
Remember what Milton Friedman once said: “Inflation is the one form of taxation that can be imposed without legislation.”