Inflation

Inflation

Many two-income couples have to rethink finances when they start having children. Women must weigh the economic viability of whether they can make enough money to pay for good childcare once they return to the workforce.

The situation is similar to dealing with inflation–you need to earn enough to compensate for basic living expenses, and then some.

Inflation Erodes Your Future Purchasing Power

The Value of $1,000 Over Time…

Let’s say you stash $1,000 away in a safety deposit box for the next 25 years, and inflation stays at today’s rate of 4% throughout that time frame. When you take the money out, you would only be able to buy $368 worth of goods.

Say instead you invested that $1,000 in a certificate of deposit (CD) or fixed income bond yielding 3%. You’re still out of luck, as the money would lose 1% of purchasing power because inflation was growing at 4%.

Assuming you can predict interest rates over time, to beat inflation in this scenario you would need to earn at least 5% each year just to stay ahead.