How to Survive the Inflation of 50% and Keep Your Wealth & Budget Healthy

Filed in Insurance by on September 10, 2022 0 Comments

Inflation US: According to a recent survey, 51% of Americans are worried about losing their savings in a recession. This is because of concerns about the looming threat of inflation.

Which has been hovering above 4% for the past two years. Inflation means that prices for goods and services increase over time.

When prices rise faster than incomes or assets, this is called “cost-of-living” inflation or “inflation” for short.

If you are reading this article, chances are you’re not an average American with a retirement account and home mortgage.

You might be someone who is passionate about personal finance and wealth management.

But even if you’re not in that category, you should know how to manage your personal finances responsibly before it’s too late and inflation catches up with you!

How to Survive the Inflation of 50% and Keep Your Wealth & Budget Healthy

Inflation US: BusinessHAB.com

Inflation US

‍When you hear the word ‘inflation’, what comes to mind? A rise in prices of essential goods and services? An increase in the cost of living? Well, all that is true. But what if we tell you there’s a different kind of inflation which can have a severe impact on your financial health. Have you ever heard about Inflation Tax or Cost-Push Inflation? If not, read on… The hidden danger lurking within inflation is called the “Inflation Tax”. It is an intentional mechanism created by governments to reduce the value of our savings through taxation and simultaneously encourage spending rather than saving. Let us explain it with an example:

What is Inflation Tax?

Inflation Tax refers to the amount of money that the government collects over time due to an increase in prices. It is also called Cost-Push Inflation as a rise in the cost of goods and services is responsible for the increase in the prices of products, which in turn leads to an increase in prices. Inflation Tax is a hidden tax, because it doesn’t appear in any government budget. It is a tax that shrinks the purchasing power of money. The dollar you have in your pocket today will have a lesser amount of purchasing power tomorrow, as prices of goods and services keep increasing. A high inflation rate can help the government collect more taxes. It can also encourage people who are receiving Social Security payments to spend those funds quickly before they lose their value due to inflation.

A brief history of inflation tax

The concept of “inflation” has intrigued the minds of economists and policy makers for centuries. However, in the modern era, the concept of inflation has gained a new dimension and has been more commonly associated with a rising cost of living- i.e. the increase in the price of commodities and essentials such as food, clothing and shelter. The idea of “inflation tax” was first proposed by John Maynard Keynes, the British economist and philosopher. He predicted that during times of economic crisis, the government might have to impose a tax on its citizens to maintain the functioning of its financial health. This in turn would reduce the value of people’s savings and increase the cost of living.

Why inflation tax matters?

The inflation tax matters because it’s a hidden tax that most people don’t even know they’re paying. A lot of times, it’s something that happens slowly over time, without you ever realizing it. You’re just suddenly in a different financial situation because of inflation. Cost-Push Inflation is a silent killer which is a source of serious concern for all investors. Inflation is a gradual increase in the general price level of goods, services and the wages of labor over a period of time. This happens when there is an increase in the supply of money in the economy, or when there is an increase in demand for goods and services relative to the supply. Inflation is nothing but a hidden tax on the people whereby the purchasing power of the money is reduced due to an increase in the prices of goods and services. Thus, the real value of the money saved decreases over time.

How does the government benefit from inflation tax?

The government benefits from inflation tax as it increases the revenue in the form of taxes. Tax revenue is the total amount of money that the government collects during a given period. Taxes are a source of income for the government that can be used to fund public services such as health care, education and defense. Inflation results in an increase in the overall price level in the economy, which leads to an increase in the sales of goods and services. As a result, companies earn more profit and pay higher taxes on those increased profits. Inflation also helps the government by increasing the interest rates as inflation is a factor that is responsible for increasing the rates.

How can you protect yourself from inflation tax?

The best way to protect yourself from inflation tax is to diversify your portfolio and invest in assets that can hedge your portfolio from the negative impacts of inflation. You can start investing in gold and real estate, which are some of the best options during periods of high inflation. Gold is considered a hedge against inflation as there is a general belief that gold prices increase during periods of high inflation. Real estate has been an excellent hedge against inflation. It is important to keep in mind that there is no guarantee that prices will increase over time. You can also reduce the impact of inflation by reducing your tax liability. There are many ways in which you can reduce your taxes, including investing in tax-deferred retirement accounts, deducting as many expenses as you can, choosing the right investment strategy, etc.

Bottom Line

The hidden danger lurking within inflation is called the “Inflation Tax”. It is an intentional mechanism created by governments to reduce the value of our savings through taxation and simultaneously encourage spending rather than saving. The best way to take care of yourself from inflation tax is to diversify your portfolio and invest in assets that can hedge your portfolio from the negative impacts of inflation. You can also reduce the impact of inflation by reducing your tax liability.

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