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Make Money Despite Big Inflations!

While weighing 2020 and 2021 out, we can vividly see the implications of a worldwide lockdown creeping in. Everything is getting more expensive by the minute. Leaving you to buy less and less of your everyday goods 😖. “Inflation & Taxes” is how the Big Boss grabs your hard-earned money. Don’t get mad, get wealthy! We are spilling the tea on how you can ‘Make Money’ despite soaring inflations 😏🤑...

Hi #KeepItReal -nation it’s time to get real again 🤐😏! It’s been a minute but now that we took a breath to look around, all we see are soaring prices 😵. Thanks to the unsatiable money printing machine of the Central Banks we are seeing inflation roar and the world currencies devalue with every new stimulus injection. Electricity, water, gas, food, healthcare, insurance. Everything is getting more expensive 👻, please stop the madness. Let's spill some tea to Make Money Despite Big Inflations!

But First, What Exactly Is Inflation?

As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of purchasing power impacts the general cost of living for the common public which ultimately leads to a deceleration in economic growth. The consensus view among economists is that sustained inflation occurs when a nation's money supply growth outpaces economic growth (source: Investopedia).

A much simpler definition of inflation is when prices rise and the purchasing or buying power of a currency (dollar, euro) drops. It means that you can buy less with your money than you used to be able to. Goods like your daily plain cup of coffee and we’re not even talking of the ridiculously priced “Mocca choca vanilla frappuccino delight” variations here….

Every economy goes through inflation (and deflation) at some point, remember the market cycles?! But the problem is that the income level of the average Jane doesn’t keep up with or exceed inflation. That’s why people become poorer, even if they think they are making the same or slightly more money. Just like a cup of coffee is an average of 6x times more expensive (a whopping 600% price increase) while the middle-class wages are up only 6% and low-class wages are down 5% since 1980.

The Root Cause Of Inflation

Rising prices are the root of inflation, while this can be due to different factors. In the context of causes (who or what starts inflation), inflation is broken down in:

Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.

  1. Rising demand for goods can cause the supply to go down, thus increasing prices. You can see this in a hot housing market where the number of people wanting to buy a home is larger than the number of homes on the market (Demand-Pull inflation). The current market mania (not based on valuations) is strictly a "demand-pull" fed insanity of severe FOMO. A seller's market nirvana.

  2. Rising costs for things like labor and materials can result in an increase in prices. Due to recent “young adults” experimenting with helium for leisure purposes, making the industry ramp up production & prices thus increasing the production costs for the normal party balloons when the prices of helium went boom (Cost-Push inflation)!

  3. The relationship between the soaring costs of living and wages also contributes to inflation. This is called the wage-price spiral" or (Built-In inflation)! It simply means that as prices go up, people expect to be paid more…which, in turn, makes the prices continue to go up.

  4. A fourth way (rarely spoken of & almost invisible to the public) of inflation can happen is when the government manipulates the money supply like the U.S. is currently doing with quantitative easing. Injecting more money into the system allows banks to issue more debt, which causes prices to increase.

The 3 Main Types Of Inflation.

There are many types of inflation but the main three are creeping, walking, and galloping or hyperinflation (source: quickonomics).

  1. Creeping inflation is the normal inflation most economies face. The Federal Reserve sets its policies hoping to target a 2% inflation rate. This is considered healthy for an economy and “in theory” wages can keep up.

  2. Walking inflation is an acceleration of inflation in the 3-4% territory. This is where it’s hard for wages to keep up and people begin to feel poorer.

  3. Hyperinflation is extreme inflation that can go as high as 20%, 100%, 200%, or even more. Hyperinflation usually involves prices changing so fast, that it becomes a daily occurrence, and under hyperinflation, the value of money will rapidly decline. This is what's currently happening all over the world while no one is paying attention 🤫...

What It Actually Means For You!

Unfortunately, most of the working population has seen their slow income gains been erased by inflation. Which costs you ask? Well, energy, housing, food, health care, insurance, just all basic needs really! According to PEW reports, “After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then.

Employees are hurt by inflation because they can only sell their time, and time does not hedge against inflation well. Raises, if they come at all, generally come on an annual basis after inflation (after you already lost all your buying power). Additionally, credit card debt and other consumer loans are hurt by inflation because the Fed raises interest rates to combat inflation. Bad debt is mostly based on adjustable interest rates that go up during times of inflation, making debt payments even more expensive.

Finally, the bank plays by the new rules of money. They pay interest on money that doesn’t keep up with inflation. Money loses purchasing power as the bank uses your money to make more money. So savers are the ultimate losers during inflation!

Now, to some, inflation is bad news because they don’t know how to use inflation to get richer. But not you 😁!

Profit from inflation!

The smart and rich have learned how to make money during inflation: leverage and hedging.

You have to play the bank’s game. Borrow money from the bank at a fixed rate, buy a cash-flowing asset that covers the debt payment, and use less of your own money to increase your return on investment. The reason for your investments and income growth is that assets hedge against inflation. In inflationary times, rents rise higher than inflation. The investment property grows your income because the debt payment stays the same (fixed) and rents rise due to inflation. Higher rents – fixed costs = more cash flow. Inflation creates more cash flow right into your pocket. In times of inflation, the borrowed money is constantly being paid back with cheaper money (a devaluating currency). As Governments make their debts deflate with the currency devaluations the same goes for your investments.

It’s the same for businesses. As the cost of goods rises for consumers, businesses adjust their prices. The costs are passed to the consumers and any profits are for the business owners. This works because business owners and investors aren’t selling time. They’re selling products that hedge against inflation in real-time. They are in control. Employees do not control their time nor their money (income) nor the costs they face (the bank or government is). Advanced investors also hedge against inflation by investing in commodities (gold, oil, energy).

In the end, our mantra—invest for cash flow, be it in business or real estate—is the safest and soundest strategy that will serve you well always and even more so in an inflationary economy. It’s a sure way to grow recession-proof wealth. Girlz it feels sooooo good to be back, 2021 let’s do this 💄👠!!!

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This Post’s Brilliant Books:

  1. What to Do When the Bubble Pops

  2. Changing World Order

  3. All Weather Portfolio Strategy Portfolio

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