How to Protect Your Money from this Double-Digit (Invisible) Tax
Taxes. Pesky things. It’s where part of our salary disappears to (20% at the very least) and there’s no knowing where it really ends up.
Taxes leave us with less of our money in our very own pockets. Come rain or shine, those taxes must be paid.
And since covid, taxes have only gone one way: up.
And in some rather sneaky ways!
But inflation might just be the worst tax of all.
Though no one actually refers to it as a tax.
Not by traditional standards anyway, i.e. you don’t add it on your tax returns nor do you inform Uncle Sam, but it’s here. Boy is it here.
Inflation steals your money from you
All without you doing anything.
Say you earn £30k (an average salary in London) and with inflation at 10% this means before you’ve even paid any other taxes, inflation gobbles up £3,000 of your hard-earned dosh. Wiped out.
If that doesn’t make you mad, I dunno what will.
And the thing is, a lot of the price rises we’re seeing right now are gradually being built into the system.
Take rail fares for instance whose prices have been shooting up like a rocket.
My friend is interning in London from outside the city so she’s gotta commute each day costing her ~£700 p/m!
The silent killer
To quote Milton Friedman:
“Inflation is taxation without legislation”
If you realise the power of this statement then you’ll start treating your money totally differently.
If prices keep going up from houses to cars (though house prices are falling as rates rise but they’re still high by historic standards!) this means you’re losing money in real terms since you’re having to pay more for everything.
The second you realise this you’ll see how investing is your way outa this mess.
By investing your money wisely you’ll hopefully be able to grow your capital over and above inflation.
Right now, this is no small feat.
Not only is inflation sitting stubbornly at ~10% here in the UK but the base rate is 4% — and rising.
High interest rates and high stock prices are like oil and water. They don’t jam. Not together anyway!
But overtime, in the long-run decades not days) investing is the best solution.
If you invest over 20 years, you’ve got a 99% chance of making money
I’ll take those odds.
Investing works. You’ve just gotta give it time. Decades of it.
But when we’re young we think we have so much time ahead of us and underestimate the power of compounding.
As we get older, the more we realise just how precious our time is and just how much our money compounds and it’s at that point that we wish we would’ve started this journey earlier.
So start investing when you can, not when you have to.
You don’t need to have thousands to start.
When I started investing, I started off with £200.
It’s not the amount you spend in the markets, but it’s the time you’re in them.
Investing is risky business. Granted.
But not investing is 100000X riskier.
You’ll lose yourself money year after year after year.
Without doing anything.
Money that you’ve probably worked hard for and money that you’ll never be able to get back.
A digital hedge
Inflation and bitcoin. I can’t not talk about that.
Bitcoin seems to be the answer to all our prayers.
It’s digitally scarce and unlike fiat currency it cannot be manipulated in price by monetary and fiscal greed.
In other words, it’s perfectly decentralised.
There are only 21 million bitcoins and there will only ever be 21 million bitcoins
No more, no less.
No one can alter or tamper with its number of coins (except maybe Satoshi himself?!)
And that is why it’s so attractive to so many people.
Ordinary folk feel like they’re getting fobbed of by the Fed.
The Fed has gone and spent ~$3 trillion (no point being exact here since we’re talking trillions!) which mostly went to prop up asset prices.
Who owns assets? The rich.
So who gained from that? The rich.
People who don’t own assets are paying the price for inflation.
Many see bitcoin as their get-out-of-jail-free card.
If you have no idea how bitcoin works why not dive down the rabbit hole and explore all the many nuances it has to offer. Try it for yourself.
See how it works; experiment with it and see where it takes you.
I’m still learning and honestly trying to get past all the endless tech jargon (it can be quite overwhelming for a non-tech person like me!) but it’s certainly got my attention — from an economic POV.
And I guess my curiosity led me down this hole.
There’s a whole lotta noise in the space and it can feel like everyone’s saying different things.
So do your own research and form your own ideas and independent thoughts.
But there’s no denying the appeal of digital scarcity.
Something that has the power to protect your fiat currency while everyone has theirs eroded.
Whichever route you choose to protect your money, or whether it’s a combo of them all, be sure that you’re investing.
Make your money work for you.
Inflation is nasty. It’s here and it’s affecting us all.
Investing is how you’ll fight it.
Disclaimer: This is not investment or financial advice. It is my opinion only. This is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Read more stories like this by subscribing to The WikiMonday Bulletin.
