You're well on your way to completing the Financial Planning Process and understanding some key terms will help you better prepare and plan for your retirement.
Consumer Price Index
The Consumer Price Index, or CPI, is how the government tracks the average household spending on goods and services and how those change over time. The government also uses the CPI to adjust income taxes and social benefits.
The changes over time to the Consumer Price Index are known as the annual rate of inflation. In the U.S., the average annual rate of inflation since 1967 has been 3.79%.
You may be thinking, “Ok, why should I care?”
Everyone should care about inflation because you want to keep as much of your earnings as possible. And over the years, you may have to adjust your budget. We've seen how, over time, the things we buy get more expensive. And sometimes our income doesn't compensate. So, that means you must either spend less or find a way to increase your earnings.
The Purchasing Power of One Dollar
Purchasing power refers to the number of goods and services that are bought with one unit of currency, in this case, the U.S. dollar. Over time, as inflation rises, the purchasing power of the dollar decreases. For example, one U.S. dollar in 1913 could buy 30 chocolate bars. In 2021, that one dollar can barely buy a take-out cup of coffee. Of course, it's all relative if the average income increased exponentially to compensate, but the rate of inflation outpaces it in most cases.
Financial planning can be overwhelming but arming yourself with knowledge and information is your best ally. That’s where my Personal Finance Resources can help.
Don’t delay - contact us today for the resources you need to get started!
I wish you peace, love, and gumbo!
Marvin LeBlanc, LUTCF, CNP
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