Inflation is here, with many believing it’s here to stay. . Many of the things we use daily are increasing in price, but why? Here are the top reasons prices are going up, and the top ways to prepare for higher rates of inflation.
The Top Causes of Inflation in 2022
There are many causes of inflation, but there are 3 primary causes in 2022:
1. Money Printing. This is probably the biggest reason but gets discussed the least. The U.S. and other countries are printing trillions of dollars to keep their economies afloat. This excess cash weakens the purchasing power of the dollar, causing things to become more expensive. As of this writing, the U.S. national debt was $30 trillion dollars:
The cost of living has steadily increased over the years. This indicates the decreased purchasing power of the dollar.
2. War between Russia and Ukraine. The war between Russia and Ukraine has caused shockwaves around the world. This war has caused inflation to rise for a few reasons:
- Increased oil prices. The sanctions placed on Russia meant many Russian products were banned in Europe and other nations, including oil and natural gas. The result is higher energy prices, which affects many goods, ranging from gasoline to electricity.
- Reduced fertilizer inventories. Both Russia and Ukraine are primary exporters of many goods including fertilizer. A reduction in fertilizer could cause a crop shortage, which causes the price of the available products to rise.
3. Increased shipping costs. The cost to transport goods across the world have dramatically increased. It is estimated that 2022 shipping costs will be higher than ever:
Fronthaul long-term rates look set to double or triple from those set last January, said Xeneta chief analyst, Peter Sand. giving the example of average long-term contract rates of $9,300 per feu on the Far East to North Europe route, closer to triple than double their year-ago levels.Read the full story HERE.
These are just a few reasons why prices are rising, and why we can expect more well into 2022.
How to Deal With Inflation
There are several ways to deal with inflation. Here are the top 3:
Tip #1. Stock Up on Supplies.
Many people wait until the last minute to get their supplies. This is not wise for a couple of reasons: 1. prices may have gone up exponentially by then, and 2, there may not be any left to buy.
In addition, China has instituted a lockdown in the city of Shanghai, home of 26 million people. This lockdown will have a devastating impact on the shipping of goods from China to the US and rest of the world. the result will be more shortages in the upcoming months.
The key is to buy items incrementally, a little at a time. next time you go to the grocery store, buy an extra case of water, or 2 extra cans of food, or an extra roll of toilet paper. Or, simply order a few items weekly online. Doing it this way won’t put too much of a strain on your budget.
Top items to stock include the following:
- Canned foods
- Bottled water
- Toilet paper
- Paper towels
- Medical supplies, (first aid kits, etc.)
- Bug spray
- Pet food
- Gardening seeds
- Spam/Beef jerky
- Gasoline (for gas generators)
- Solar generator
Ask yourself: If you could not go to the stores for one month, what items would you need to function normally? These are the items you must stock up on.
Tip #2. Generate Multiple Streams of Income and Passive Income
The average person has one job, and that one job is expected to pay all their bills. This can be difficult when prices begin to increase. Budgets will have to be stretched and some items will have to reduced or eliminated altogether.
Wealthy people do not have this problem: the average millionaire has 7 or more streams of income, with many of them being passive income. Note: this does not mean 7 jobs, but 7 ways to generate revenue. Popular types of multiple streams of income include the following:
- Real estate
- Vending machines
- Dividend paying investments (stocks, mutual funds, REITS, etc.)
- Monetized websites, blogs, social media platforms, etc.
- Published books
By having more than one income source, a person is better equipped to handle inflation and other changes in the economy. An added benefit is the prices of some income streams can be increased to keep up with inflation. For example, a person who writes books can raise the price of their books, while the average person has no control over their salary or wage. In other words, the more income streams a person has, the better.
This is an important lesson both adults and children can learn. See my books on investment strategies and entrepreneurship for kids here:
- Invest For Success: Millionaire Wealth Strategies Not Taught in School.
- Planting Seeds: The Children’s Guide to Entrepreneurship.
Tip #3. Stock Up On Assets
As we discussed in Step 1, buying select items and household necessities like bottled water and non-perishable foods is key before inflation hits. While these are great, they aren’t the only things you need to deal with inflation. You also need assets.
Bottled water is a necessity, but it doesn’t hold its value. Toilet paper literally gets flushed after use. Neither of these can help a person financially. In addition to buying these items, it’s critical to accumulate things that can retain their value or increase in value. Two excellent examples of this are gold and silver.
Both gold and silver have been used as money for thousands of years. They are considered by many to be excellent hedges against inflation, meaning they retain their value when other items tend to lose value and the purchasing power of the dollar decreases.
This is a key reason why the rich get richer, the poor get poorer, and the middle class get “squeezed:” Wealthy people own assets as part of a wealth preservation strategy while the average person may not own anything outside of their 401k.
It’s not just individuals buying gold. Central banks and countries like Russia and China are buying gold as well:
More recently, European Union members Poland and Hungary have been making regular additions to their holdings. The statement issued by Hungary’s central bank at the time of its March purchase, which tripled its total gold holdings to 94.5 tons, gave an insight into the asset’s modern-day relevance as well as its enduring appeal. It said that managing “new risks arising from the coronavirus pandemic” played a key role in the bank’s decision, while “the appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value.”Read the article HERE.
Ask yourself: why are these countries and central banks purchasing gold? if they are buying it, should I consider owning some too?
One way to increase wealth during periods of inflation or economic downturns is to use gold to buy other assets such as real estate, stocks, or other investments.
Here are my thoughts on dealing with inflation:
Putting it All Together
We are starting to see signs of inflation, and they are only going to get worse. Now is the time to prepare by stocking up on select items and formulating a wealth preservation strategy. By preparing today, you increase the odds of having a less chaotic tomorrow.
More than ever, having multiple streams of income is vital. Register for my online class Tired of the 9-5? How to Retire Early With Passive Income today.