Having Too Much Cash? This Will Change Your Perspective.
What to do when the inflation is sky-high?
I was scared of not having enough cash in the bank during 2019/2020. I had about 25% of my net worth as cash in a savings account in addition to my emergency corpus.
During the COVID, the FED came up with various monetary easing (or) stimuli, thereby printing a lot of money. Money was surplus, interest rates were too low, and in some countries, it was negative. The markets zoomed, almost doubling after the 2020 Covid crash.
Where are we now?
The United States recorded an inflation rate of 7.9% in February 2022, and that's pretty high. In February 2021 inflation rate was around 1.2%, and it has increased drastically in the past twelve months. We are experiencing such high inflation after 30 years.
Is the inflation really at 7.9%?
The chart from Statista shows the monthly 12-month inflation rate in the United States from February 2021 to February 2022
So what's Inflation & Why Worry?
Inflation is the decline of purchasing power of a given currency over time. If you had purchased a meal for $10 a few years ago, you would have to spend $20 for the same quantity and type of food. Inflation is a measure of the buying power of a dollar. It tells us how much more an item will cost down the road due to the costs of producing something (labor, materials, etc.) going up over time. That loaf of bread that you buy today for, say, $2, would have only cost about 50 cents a few decades ago. On the flip side, that loaf of bread will cost $4 to $6 in a couple of decades due to inflation.
A Powerful Image that Changed my Perspective!