One of the bogeymen that we have to address when structuring our financial lives is the fact that every dollar that we create for ourselves will be worth around $0.97 next year, around $0.94 the year after that, and then $0.90 or so in the third year.
If you want to separate yourself from most people out there, you need to borrow a couple chapters from Irving Fisher’s The Money Illusion, and condition yourself to think in terms of purchasing power. Most people aren’t equipped to do that. Even if you had a guarantee that the United States would experience 3% inflation over the next year, my guess is that a lot of people would think that $10,000 deposited in the bank today was less than $10,250 deposited in the bank account next January.
In terms of nominal dollars, sure. But if inflation hits 3% on average over the next … Read the rest of this article!