Written by Lauren Peterson
Inflation is when prices go up over time, which means your money buys less in the future than it does today.
In 2000, a movie ticket cost $5. Today it's $15. That's inflation. Your $5 bill didn't get smaller physically, but it buys 1/3 of what it used to.
The U.S. averages about 2-3% inflation annually (though it spiked to 8% in 2022). At 3% inflation, your money loses half its purchasing power every 23 years.
If you keep $50,000 in cash under your mattress for 20 years, it'll still be $50,000 - but it'll only buy what $27,500 buys today. You "lost" $22,500 in purchasing power.
Historically return 10% annually, outpacing inflation. Your money grows faster than prices rise.
Property values and rents tend to rise with inflation.
Government savings bonds that adjust with inflation (rates change every 6 months).
Bonds that increase in value with inflation.
Ask for raises, switch jobs, develop skills. Your salary needs to outpace inflation or you're taking a pay cut.
Keep 3-6 months of expenses in savings for emergencies, but invest the rest. Cash is losing value every day.
Quality items that last decades (good tools, furniture) become relatively cheaper over time.
If you have fixed-rate debt (like a 30-year mortgage), inflation works in your favor. You're paying back the loan with "cheaper" future dollars. A $2,000 mortgage payment feels much easier 20 years from now when you're earning more.
Inflation is guaranteed. Keeping too much in cash is guaranteed to lose you money. Invest to stay ahead.
See how inflation affects your future purchasing power with our Inflation Calculator!