This is why you’re feeling broke

The past few years have arguably been the toughest in recent decades for your typical wage earner.

If you’re on a salary, then there is little doubt you are doing worse than back in 2019 before things really started to change.

The main cause of the pain for wage earners is inflation. 

Inflation effectively means rising prices over time, which results in the cost of goods and services being higher now than last year or even five years ago.

For the most part, governments actually like inflation. They can rack up a lot of debt, and with the help of inflation, they can effectively inflate the debt away. 

The goal of the Reserve Bank of Australia (RBA) is to always have some inflation in the economy, targeting a rate of 2-3 per cent every year.

The RBA manipulates the economy through the money supply and measures such as interest rates to encourage some degree of inflation. 

However, for the average person, inflation doesn’t make life any better. 

While the government boasts about steady economic growth, the typical wage earner is likely not any better off.

In recent years, inflation has surged to the highest levels in decades, with CPI (Consumer Price Index) topping 7 per cent at times before falling back to around 3.6 per cent currently.

This means that while your wages might be increasing 2-3 per cent every year, the cost of living has gone up by 7 per cent. 

That’s why it feels like you are doing it tough—because you are. And that’s not even accounting for the possibility that CPI is higher than official data suggests.

However, it’s not all bad news. 

There is a simple way to deal with inflation: invest in property. 

Over the past few years, as inflation has risen, so have asset values, with stocks and property prices reaching record highs.

One of the best hedges against inflation is land. Despite ongoing concerns about housing affordability, property prices continue to rise. 

As long as inflation exists, property values will likely rise at a similar rate, if not higher, due to factors like local supply and demand and changes in zoning laws.

A rising tide lifts all ships, but if you’re not on the ship, you’re going to sink. 

That’s why it is important to invest your money in assets that increase as much as inflation or more. 

This way, you’re not falling behind and ideally getting ahead, certainly ahead of those who do not own any assets.

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