Protecting your money from inflation
The last thing I want to do is get political. I’m very politically active, but I’m also a total wimp when it comes to confrontation, so I tend not to be very vocal about politics.
I know I have readers from all walks of life and I love you all. But it is because I love you that we need to talk about the situation in which we find ourselves these days.
Today we need to talk about politics AND money (just because they’re inseparably intertwined). I might even throw in some religion just for fun! Politics, money AND religion. Lions and tigers and bears, oh my!
Check out this meme.
Notice that those two dates, 1998 and 2013, are only 15 years apart. We’ll come back to that later.
Because I’m so frugal, I’m very price conscious. Just ask my husband. He doesn’t know the price of anything — he just buys stuff.
Me? I know the price of everything by heart, including prices of different brands and the various sizes available. Prices matter to me because we have a large family, single income, and I’m in charge of paying all the bills.
Inflation has always bothered me, but there have been just a handful of times in my adult life that it has really worried me. Like, to the point it kept me up at night.
March 2020, the start of the pandemic, was one of those times. Stores were out of all kinds of basic goods (like toilet paper), and when you could find things, the price was astronomical.
Our grocery bill literally doubled overnight and not just because we were all home more, because as homeschoolers we’ve always been home more than your average family.
The day it hit me the hubs and I were at Walmart stocking up for the shutdown, and I remember commenting to the hubs that eggs had literally doubled. We figured it was probably due to the shutdown — re-supply trucks not running or something — and we wondered if the price would go back down once the two-week shutdown was over. (Because it was supposed to just be two weeks to ‘flatten the curve’, remember?)
Honestly, I didn’t figure they would. Why would retailers waste a perfectly good crisis?
Eggs weren’t the only thing that had doubled overnight. All groceries, lumber and building supplies, energy (aside from gasoline, which stayed pretty darn cheap through January 2021), and other necessities had also gone up. I kept a watchful eye on prices, hoping they would go back down to their pre-pandemic levels, but no.
(I mean, here we are a year later, March 2021 and I can’t honestly say we’re even post-pandemic yet since mask mandates are still in place and we still aren’t “allowed” to gather publicly.)
In fact, a couple of months later, when the first stimulus package came out, prices went up yet again. Sadly, that makes perfect sense.
You can’t expand the money supply without devaluing the currency already in circulation.
That’s like if I were to bring home one small pizza to feed my entire family and plop it in the center of the table. And then, when my kids inevitably complained that it wasn’t enough for everyone, I took the pizza cutter and cut all the slices in half, changing it from an 8-slice pizza to a 16-slice pizza.
There! Everyone gets 2/16 instead of 1/8!
Yeah, I wouldn’t fool my kids.
The government isn’t fooling anyone.
Everyone knows that the Federal Reserve CANNOT create additional VALUE, so printing more currency just devalues the money we all worked so hard to earn.
Of course prices went up at that point.
And then it happened again last December with the second stimulus package. And again this month with the third stimulus package.
I did my regular grocery shopping this morning, just bought the bare minimum, and spent $150 where I used to spend under $70 on the exact same products. Plus, sizes are smaller than ever!
A few years ago, bags of jelly beans were a pound. Last year they were 11 oz. This year they are 7 oz., not kidding! I bought Easter candy last week at Walmart and everything was smaller that it has ever been — at higher prices.
My son actually grabbed the bag of jelly beans I had just added to my cart and said, “Are these single serve bags? Because that’s about one bite of jelly beans. You’re going to have to get us each our own.”
Prices on everything are higher than ever. Gasoline has doubled since January, and groceries keep creeping ever higher. I live in a higher cost of living area and the only people who can afford to buy homes are the ones moving into our area from San Francisco and LA, which are even higher cost of living areas than mine.
What’s a hard-working American to do?
How long do we stand by and watch as our financial system is destroyed?
This isn’t a bipartisan issue. I don’t care if you’re a democrat or a republican or something else entirely — if you work day in, day out to provide a good life for your children this affects you.
You probably just received your third stimulus payment, or you’re about to. Watch what happens to your bills over the next few months.
The government will be taking that small pizza that doesn’t feed us all in the first place and dividing each slice into halves again, dividing the current 16 slices (that were originally 8 slices) into 32 slices and hoping we don’t notice that it’s still the same amount of pizza.
The government keeps telling us that inflation is less than 2% annually and that a limited amount like that (which they are carefully controlling) is necessary for the growth of the economy.
I want you to understand that inflation is NOT 2%. It’s MUCH higher.
Inflation is like a gigantic tapeworm, forever preying upon its host, growing larger and hungrier until it kills the host. It is not sustainable.
Some industries, like the dairy industry, along with many farm commodities are subsidized by the government and so the increase in the price of milk from the grocery store over the years is not an accurate indicator of inflation (just so you’re not saying, “But milk has been the same price for YEARS”). But restaurant prices are pretty good indicators.
I’m a numbers person and I remember prices and I’m also an ice cream connoisseur so I can track the real-world inflation of the ice cream index with decent accuracy. The cost of a regular triple scoop ice cream cone from my favorite local creamery has gone up from $1.50 in 2002 to $3.50 in 2016 to $5.00 in 2021.
That’s a $233% increase since 2002!
According to official experts (whomever they are) who claim 2% annual inflation rate, my triple scoop cone that cost me $1.50 as a poor, newlywed college student should cost me $2.19 in 2021. Hmmm…
I think I’m being robbed.
I’d switch creameries if I could find any cheaper. But these rates of increase are similar across the board.
I am being robbed, and not by the creamery.
You are being robbed, too.
The enormous loss of purchasing power we are seeing is a result of several factors: expansion of the money supply (recent stimulus packages have dramatically exacerbated the rate of inflation), the manipulation of interest rates (making money cheap to borrow), wage increases (legislating an increase in minimum wage), criminal enterprise by bankers (fractional reserve banking), and plain old governmental regulation (aka manipulation). Don’t even get me started on the Federal Reserve!
If you don’t live in the United States and you think this doesn’t affect you — you’re wrong. World currencies are tied together. Many world currencies are pegged to the U.S. dollar, thus the term ‘the dollar standard’.
I personally think Putin was brilliant to detach Russia’s currency from the U.S. dollar last month in order to reduce the Russian economies exposure to the rampant inflation happening in the United States.
You hear horror stories about the hyperinflation in the Weimar Republic and how during late 1922 citizens would cart wheelbarrows full of cash to the market to buy a single loaf of bread. Workers demanded to be paid daily and would immediately take their paychecks to the market to buy bread and milk because by the end of the day they could no longer buy anything with what they had been paid at the beginning of the day.
The same thing is going on right now in Venezuela, Zimbabwe, Lebanon, Greece and probably other countries, too. I’ve seen pictures of Venezuela with cash littering the streets because it’s worthless.
Starving people are scrounging through garbage cans looking for food.
This is the inevitable result of fiat currency. When a government prints fiat money that isn’t backed by any value, disaster always ensues.
Over Emperor Nero’s lifetime, he gradually reduced the Roman denarius from 94 percent silver to 85 percent silver. Subsequent emperors continued the practice, enriching themselves while impoverishing their subjects. By the time the Roman empire collapsed, the denarius was made of 0.02 percent silver, at which point it became useless and failed as a currency.
I’ll answer my own questions. The people making the rules (the Federal Reserve, bankers, legislators) benefit and the people subject to the rules (us) lose.
How will you protect your family and your wealth?
I’m no expert. I’m not a financial advisor. I’m not a prophet. I’m not giving you financial advice and even if I were I’d be the first to tell you not to listen to me.
My own teenagers (who are actually pretty adept investors) laugh at me for being so extremely fiscally conservative.
Any information I provide in this article is for educational purposes only. Make sure to do more of your own research before making any financial decisions. Your financial gain or loss will be due to your own due diligence and financial understanding. Be smart with your money!
This is a situation where you need to do your own homework. But I will tell you what I do about my own financial situation when I see this kind of inflation…
Here are a few ways I protect my money against inflation:
1. Remove any substantial savings from traditional savings and checking accounts
Inflation can erode your savings. So, while you need to keep some cash handy for emergencies, it’s best not to keep too much.
Savings accounts, checking accounts and even money market accounts have rates of return FAR lower than inflation. The credit union at which I bank is currently paying 0.05% on savings accounts and money market accounts. They are paying 0.01% on checking accounts.
If I kept $10k in my checking account at 0.01% with an inflation rate of 7% (that’s my extremely conservative guess at the current inflation rate) I’d be losing 6.99% or $699 annually. Money that I worked hard for. Poof! Gone.
If you stuff your savings under your mattress, you are losing value at exactly the rate of inflation. Choose investments that will give you a return greater than the current rate of inflation.
Even CD’s less than 5% APR are a bad investment right now. Certificates with a fixed rate tend to be a bad investment during times of inflation, while variable-rate assets do better because the rates tends to follow inflation upward.
2. Trade your fiat currency (increasingly worthless paper) for precious metals
It has long been said that gold is the currency of aristocracy, silver is the currency of gentlemen, barter is the currency of peasants and debt is the currency of slaves.
If you look at the current spot price of silver and gold, you would almost believe that inflation had been nonexistent since the dawn of time. As I write, silver spot price is $26.49 and gold spot price is $1749.67 per ounce.
I’m not going to get into the other precious metals, but I personally feel that silver and gold are both tremendously undervalued. In the early 20th century, Henry Ford paid his Model T line workers $2.25 per day or 1.6 troy ounces of silver per day, or about 416 troy ounces of silver annually.
At the current spot price of silver, that equates to about $11,019.84 annual salary. Huh. My 14-year-old daughter makes more than that babysitting the neighbors.
Why such a disconnect?
This is just my opinion, but I think that bankers are artificially suppressing the price of gold and silver for their own benefit. JPMorgan was fined $920 billion for manipulating the precious metals market in 2020 and I think it’s still going on.
What that means for investors of precious metals is that you can get a heck of a deal right now! The machinations of evil bankers can’t go on forever, which means precious metals (especially silver and gold) are likely to skyrocket.
3. Invest in specific, inflation-proof stocks
Counteract the effect of inflation by investing in the stock market, but be sure you research the stocks in which you choose to invest. Different stocks do better depending on what type of market you’re in.
Focus on companies that generate cash rather than consuming it. Defensive stocks like healthcare, oil, utilities and consumer goods tend to perform well.
Precious metals stocks tend to do well also. You can buy stock in mines (but be sure to research them — I choose mines that are already productive rather than mines still in development) or shares in ETF’s. Just read the prospectus of the ETF and make sure the stock actually holds the metal rather than selling hundreds of paper shares for every ounce of actual metal.
Understand that your true earnings are the increase of the stock less the inflation rate. Always remember that even the best companies cannot outmanage the government. Warren Buffet is famous for saying, “Be fearful when others are greedy and greedy when others are fearful.”
There are lots of no-fee, DIY investing apps (YouInvest by Chase, Robinhood, Fidelity, ETrade, SoFi, TD Ameritrade) out there now so you can invest on your own without having to pay a broker. Most of them have limitations, but I use YouInvest, Robinhood and SoFi and they are all user-friendly and intuitive. Of course, you are also taking on the responsibility for making wise investments, so research, research, research.
4. Invest in yourself
A better education may provide a more lucrative career. Or maybe you’ve been dreaming of starting your own business. Start or grow a business. The key during economic inflation is to be extremely fiscally conservative.
Don’t go get an advanced liberal arts degree. Make sure jobs are available in the field you want to pursue and then check the median income for that field and make sure the degree will improve your marketability and increase your income.
If you want to start a business and have a great idea, ease into it slowly, building it yourself as much as possible, instead of hiring a huge team and renting office space from the get go. Then invest profits in your business in order to help it grow.
5. Real assets make good investments during inflation
Real assets are tangible things with intrinsic value. That intrinsic value increases at about the same pace as inflation, making them wise investments. Both real estate and commodities are considered real assets.
Real estate is an especially smart choice during inflation because rising prices in general (inflation) means rising prices for real estate, too. Not only does the resale value of the property increase over time, but so does the rental income you can charge.
If you aren’t ready to buy and maintain actual property, you can still invest in real estate through real estate investment trusts (REITs). Although technically securities, REITs are influenced by real estate trends and they tend to rise with inflation.
Commodities, like agricultural crops, raw materials and natural resources are another type of real asset. Their prices rise with inflation because of their intrinsic value, but also because they are frequently necessary in other industrial use.
Technically, precious metals are considered both commodities and real assets, but I wanted to be sure to mention them separately above because investors should really take notice of how undervalued both god and silver are at the moment, giving them enormous potential for increase.
Finally, if hyperinflation is a concern, your first priority should be your physical needs
Hyperinflation is loosely defined as rapid, excessive, and out-of-control price increases in an economy, typically at rates exceeding 50% per month for an extended time. Let’s look at Venezuela.
In 2014, their annual inflation rate reached 69%, the highest in the world at the time, according to Wikipedia. In 2015, Venezuela’s inflation rate was 181%, then reached 800% in 2016, over 4,000% in 2017, and about 1,700,000% in 2018. Since 2018 it is not even measurable.
I can’t even tell you the rate conversion of the Bolivar to the USD because it changes so drastically by the second. What happens in a case like that?
I’ve read that in Venezuela, a single ounce of silver will buy a family of five groceries for six months; a single ounce of gold will buy a nice home outright. But the political situation is such that food is not readily available and most aren’t allowed to buy a home anyway.
You can’t eat silver and your stocks will be worthless in the case of hyperinflation. Depending on what your occupation is, and especially what the political climate is like (hyperinflation is often preceded by communism or totalitarian governments) you may no longer have the ability to earn money.
Can you feed and clothe your family and keep your home warm and secure if your money has become completely worthless? I don’t want to get into prepping here, but it’s a question to consider if you’re concerned about hyperinflation.
Preparing For Inflation
Prepare for inflation by making your money work for you and decreasing your exposure to risk. Choose an investment strategy that’s likely to give you a return that at least keeps up with the inflation rate. Look for real assets that have intrinsic value and will appreciate right along with the rate of inflation.
If you’re strategic and careful and fiscally conservative, you can maintain the value of your money and probably even increase your net worth. If you haven’t seen this before, you should really check out the US Debt Clock.
My intent is not to keep you up tonight, mulling over your precarious financial situation, but rather to get you thinking about how best to weather the coming storms.
Be sure to stretch the debt clock window below wider (or click over to the site using the link above) so you can see and investigate all of the components of the debt clock. Precious metals are ALL the way to the right in the window.
Take note of the ‘Dollar to Gold Ratio Now’ and the ‘Dollar to Silver Ration Now’. See what I mean about just how undervalued silver and gold are? Pretty interesting, huh? That’s why I think silver, gold, miners and silver ETF’s are such a great investment this year, or at least until their value self-corrects upwards.
I hope I’ve given you some food for thought. If you’ve noticed the same trends I’m seeing in your own budget, take some time to research solutions and find the best options for your own family and economic situation. I don’t want anyone I love to be scrounging through dumpsters for food a couple of years down the road.
I honestly hope I’m wrong. I wish I was the granddaughter of Warren Buffet or some financial guru and that I could share his far-more-accurate-than-mine predictions with you.
Better safe than sorry, though. We lost a holy ton of retirement in the 2008 stock crashes, which probably makes me more cautious than most (to the amusement of my much less risk-averse teenagers). You have to decide what’s right for your own family.
Oops! I totally forgot to bring religion into this discussion. Next time…
Pin this information on inflation for later!