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Are You Really Getting A Raise?

You may be surprised to hear this, but you don’t know nearly enough about money as you should.

Statistics show that the subject being discussed here, you probably know very little about. And it’s a shame. Because this concept of money has a great affect on you. Whether you know about it or not…

It’s called inflation.

You may have at least heard the term before. You probably even a basic understanding of what it means. But I bet you have no idea how much it is going to affect you in your lifetime.

You see, people every year pat themselves on the back whenever there boss gives them a raise. They feel good knowing that they have done a good job and they are being rewarded for it with a little extra pay.

But what most people don’t realize is that the raise they are getting isn’t nearly as much as they think it is. It might not even be a raise at all!

Let’s say you are currently making $40,000 a year and your boss says, “Great job! I’m paying you an extra $1600 next year.” If he tells you that, you can tell him to shove it where the sun don’t shine! As weird as it sounds, you are basically making the exact same amount as you were the year before. Why is this? Once again, it’s called inflation.

The Basics Behind Inflation

Basically, what inflation does is increase the price of everything from the year before by an average of 4%. So a $1600 raise from a salary of $40,000 a year is a 4% increase. While it might sound good, you’re really making the exact same amount as you were the year before!

Sure, $1600 is better than getting nothing. If you get nothing, you are actually getting demoted. But economically speaking, if you get a 4% pay increase, it’s like you didn’t receive a raise at all.

The same thing must be factored in if you are making $40,000 a year and you are getting a $5,000 raise. If you do the calculations, it seems like you are getting a 12.5% raise, but you are really only getting an 8.5% raise. This makes a $5000 raise really seem like only $3400.

Quite a big difference if you ask me!

If you are having a hard time grasping these numbers, just understand that prices are getting more and more expensive every year. So you need to get paid more every year to balance things out. Inflation is a very powerful thing when it comes to money. It’s the reason why cheeseburgers used to only cost a quarter. And it’s the reason why prices slowly and steadily go up. Whether you notice them or not!

What To Do About This Phenomenon

You may be thinking that inflation sounds really awful. Since I have only mentioned the negatives about inflation I don’t really blame you!

But inflation is a good thing. Since you are now at least aware of it, you can find ways to capitalize on it!

How can you take advantage of something such as inflation?

It’s very simple. You put your money in situations where inflation goes to work for you rather than against you.

I will give you a very easy way that you can do this. It’s probably the most popular way that people take huge advantage of inflation. It’s called investing. More specifically, investing in index funds.

If you invest in an index fund, you are investing hundreds and thousands of companies in the stock market. So if you own stock in an index fund of the United States, you’re earnings will reflect how the entire stock market is doing in the United States as a whole.

Now why would you do such a silly thing?

Well, not only does the stock market gradually get bigger in it’s own right, it also gets bigger because of inflation. Inflation makes it a near guarantee that the money you invest will go up in the long run.

Now even though the stock that goes up isn’t nearly as much as you think it is (because of inflation of course). It’s much better to have your money increasing 4% then nothing at all!

By investing $10,000 in an index fund today, it sort of guarantees that your investment will still be worth that much twenty or thirty years from now. Since the stock market will generally reflect the amount of inflation that is happening, in addition to some other gains.

This is much better than simply locking away $10,000 in your closet somewhere. By doing that, your $10,000 actually becomes a little less valuable every single day. Forty years from now, that $10,000 is not going to be worth nearly as much.

People are taking advantage of inflation in all sorts of ways besides the stock market. Real estate is another example that I can think of. If you live in a house for ten years, chances are good that you are going to sell it for more than whatever you paid for it initially. Provided that you don’t put holes in all of the walls!

Don’t be mislead. Many houses certainly go up because the owner fixed up the place. If you can do that well, you can make a fortune in real estate. But also houses go up because of inflation.

It’s just one of the many ways you can have inflation working for you rather than against you.

Final Thoughts

Now that you are aware of inflation, put your knowledge to good use. Think of ways where you can put your money in a situation where it goes up every year because of inflation rather than down.

When you are getting a raise, think about how much that raise is actually worth before you go decide to blow it all on something that you really don’t need.

Inflation is a huge part of the economy. Smart people take advantage of it to become richer. Dumb people have no idea what inflation is or how it effects them and therefore become poorer.

You are officially not dumb if you starting finding ways to have inflation work in your favor. Remember, knowledge is only power if you find a way to put it to good use. Simply reading this article will not make you any wealthier.

Put it to use and you will be well ahead of over half of the people on this planet who know nothing about inflation.

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