Sunday, June 15, 2008

Buy it With Cash Now

I read this article about inflation recently. In a nutshell, inflation is a serious concern at this point. And we're not talking about that wonderful 'special' inflation that excludes the cost of food and energy. This type of inflation is absolutely ridiculous because for most families, the inflation on those two items alone is what is effecting their heating, transportation, and food costs.

This is not an article about inflation measurement. I think that everyone needs to accept the fact that prices have gone up significantly in a short period of time for the average US citizen. For the average person, this can be a difficult situation to deal with. So, I'd like to describe some anti-inflation strategies. Some of these were talked about this morning on Consuelo Mack: Wealthtrack as a means to describe anti-risk investments.

The first basic idea is simple: If you know that the value of the dollar is declining and/or prices are rising, spend the dollars quickly before they lose value. Granted, you don't take this to extremes, but on a practical level, if you plan to do certain projects in the near term anyway, you might be able to lock in prices by going through with your purchase earlier.

The second idea is to evalute your liquid cash and where you're keeping it. Many different options exist for what is considered 'safe' money. When inflation is high, the value lost over time is really tangible. Therefore, investing in different types of 'safe' money is even more appealing to the average person.

The third major concept is an idea that Suze Orman recently revisited on her show: the emergency fund. Frequently, financial writers and experts tout a three to six month emergency fund. Now Suze recommends a 12 month emergency fund. Although I think that this is somewhat a reaction to the issues with the economy, inflation definitely seems to indicate this might not be a bad idea. If you expect the value of savings could decrease over time, it makes sense to have more in order to have the same level of security that you're accustomed to.

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