Taxes. Those 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. And oh boy is it here now. Psst: read here what you should do the minute you start earning for a lifetime of freedom!
Inflation takes your money away from you. By eroding it, making your money be worth less. All without you doing anything. So, 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!
That’s £3,000 of your hard-earned dosh wiped out. From inflation alone. If that isn’t mad, I dunno what is. And the thing is, a lot of the price rises we’re seeing right now, they’re gradually being built into the system. Take rail fares for instance, whose prices have been shooting up like a darn rocket! My friend who lives outside the city is interning in London so has to commute there each day which means she’s paying ~£800 p/m!
The Silent Beast
To quote Milton Friedman: “Inflation is taxation without legislation”. If you realise the power of this statement then you’ll start to act very, very differently toward your money. See, if prices keep on going up from houses to cars (look no farther than the second-hard market!) then this means you’re losing money in real terms (adjusted for inflation) since you’re having to pay more for everything.
The second you realise this, you’ll see how investing is the only 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 what with high inflation and stupidly high interest rates. Stock markets hate high interest rates, btw! Read here the 3 best & most accessible ways to grow your money in your sleep.
It’s a tricky time to invest and it can seem like there’s nowhere to hide but overtime, in the long-run, (that’s decades not days!) investing is the best solution. Investing works. You’ve just gotta give it time, and patience. When we’re young we think we have so much time ahead of us and underestimate the power of compounding but the older we get, 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 when you can, not when you have to. Cause by that point, it’ll probably be too late. 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 the markets. Read here the hidden reward for being a patient investor.
But if you still find yourself paralysed at these strange, tricky and frankly unprecedented market territories, drip feed your money into your investment account. And start to build a cash pile for yourself so that you can also take advantage of these low prices. Investing is risky business. Granted. But not investing is even 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 (a hedge against inflation) and unlike fiat currency (like the USD), it cannot be manipulated in price by monetary and fiscal largesse. 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, nor 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 (hello, inflation) and the gains went into the hands of the top 10% (aka the rich, those who own the assets).
People who don’t own any assets are paying the price for inflation. We’re having to pay up for our property, for our stocks, for our food and fuel as well. And many see bitcoin as their get-out-of-jail-free card. But it hasn’t exactly held up during this period of inflation, nor the geopolitical tensions in the East. I suppose time will tell!
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 personally still figuring this all out 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.
And I guess my curiosity led me down this hole. What I will say is this: 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 blog is not investment or financial advice. It is my opinion only. This blog 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.