Worried about inflation? Do this

A little while ago, I spoke to a couple who told me groceries have become To view this email as a web page, [click here]() {NAME}, A little while ago, I spoke to a couple who told me groceries have become insanely expensive. I said, really? She said, “Yes, inflation is killing us.” I asked her what she meant. This was her response: “Well, it just seems like everything is more expensive. I guess we could look at the price tags more.” THIS LADY WAS BLAMING INFLATION BUT SHE DIDN’T EVEN LOOK AT THE PRICES OF WHAT SHE BOUGHT!! [GIF] (BTW, check out my Netflix show “[How to Get Rich]()” if you want to see more stories like that one.) Inflation is very real, but it has now become a word that people imbue with their greatest fears to mean anything they don’t like. - Car prices are up — inflation! (True.) - House prices are more expensive — inflation! (Sort of, but not really.) - I have to pay for Twitter now — inflation! (Are you kidding me?) Let’s cover how you can deal with inflation. I'm not a macroeconomic expert nor can I make predictions about inflation, recessions, or the future in general. (Neither can anyone else, so ignore the prognosticators. See Chapter 6 of [my book]() for more on this.) Now let’s talk about what inflation means for you. What is inflation? Here's the TL;DR about what's happening with inflation… - Inflation is normal. It’s like saying “cold weather is normal” — it happens based on our financial systems. In fact, the financial world typically assumes around 3% inflation every year. (That’s why we assume ~11% stock market returns minus 3% inflation = around 8% average returns.) - What’s not normal is this rapid inflation. This is a good time to call your parents and ask them what they remember about inflation in the 70s and 80s. And ask them what their mortgage rates were. You’ll be surprised. Part of getting older is getting perspective that what you encounter has probably happened before. (But remember, your parents also have a limited perspective: They’ll tell you how they had 15% mortgage rates...but houses also cost way, way less.) - Over the last 12 years, the government has injected huge amounts of cash into the economy. They did it during the 2008-2009 global financial crisis. And they did it in 2020 when there was another global crisis — COVID. You can debate about if they should have done it, who they sent it to, etc. But in my opinion, when facing financial crises, they had to react. - Why do it? The US government doesn't want the economy to collapse. If people have less money, no one spends, then no one has money. However, there are side effects. If you give a teenager a ton of cash, what are they going to do? Buy a bunch of stuff! And that's exactly what has happened with the economy. When tons of cash floods the market, people buy more stuff. As demand for stuff goes up, things get more expensive. - But that’s not the only reason for inflation. Some inflation is due to shifting demand forward by years. Low interest rates combined with COVID also played a role. And there are effects happening today, including the war in Ukraine affecting the prices of things like gas around the world. - [Consider eggs](). From the New York Times: “Buying eggs has become very expensive. In December 2022, the average price of a dozen eggs in the U.S. was $4.25, more than twice what they cost a year earlier. A combination of factors is at work here. Some, like inflation, have a broader, more long-term impact on goods in general. Others, like the outbreaks of a highly contagious avian flu, are specific to eggs and poultry.” - Some items are cheaper now. As [the Wall Street Journal notes](), “Smartphones and TVs are considerably cheaper than a year ago thanks to aggressive discounting by retailers...Smartphones are also 20% less expensive.” - This is an oversimplification. There are lots of other factors involved. I'm painting in very broad strokes here. - There’s a phrase in finance: “The solution to high prices is high prices.” Retailers and suppliers have zero reason to lower the price if consumers are still willing to pay. That’s what’s happening to housing prices, for example. - Most of us understand that things get more expensive over time. The problem is that we don't expect price shocks, like a price jumping 25% overnight. That's really hard to plan for — and it's just hard to psychologically accept. - [The media feeds on making you scared](). Even though unemployment is at record lows — meaning you have leverage as an employee to find a [Dream Job]() — the media loves to write about all the things going wrong. (Notice how almost nobody has written about gas prices dropping 20+ days in a row.) What can you do about inflation? The first step is to confront reality. That means not freaking out about what the news is saying. [In the news] Ask yourself 3 questions: - Have you personally noticed any price changes in the things you buy, up or down? Do not say “EVERYTHING IS MORE EXPENSIVE!! AHHHHH!” That is not helpful, nor is it true. - How are these changes impacting you? Be specific. - Are you feeling stressed because of changes you've had to make…or is it just because of what you're seeing online? Let's be calm, cool, and methodical. Remember: Just like people are horrible at knowing what they actually eat and what they spend, they are even more horrible at knowing the cost of things. Inflation sounds scary, but very few people can actually say what it means for them personally. And yes, for some people, the price increases could be very real and painful. For example, if you have a 45 minute commute and your gas prices jump 40%, that can hit your pocket. I spoke to a guy who pays $770/month for gas (for his truck). That is an extremely difficult situation, and it disproportionately affects people with lower incomes. The second step is minor tracking. In times like this, it's a good reminder how valuable it is to have a sense of where your money is actually going. I'm not talking about budgeting. No complicated spreadsheets. This simply means being conscious of how you spend. Just a minor list of how you're actually spending your money. Use my [Conscious Spending Plan template]() for rapid tracking of your spending. [CSP] This is the exact plan I taught my students to build their Rich Lives on my Netflix show "[How to Get Rich]()." How much are you actually spending on gas? On groceries? On utilities? If you track this over time, it's easy to see when a certain category goes up. Instead of worrying about inflation as some vague bogeyman, you can get specific. For example: "My groceries are costing an extra $50 a month" or "My gas has gone up $200 a month." This brings us to step #3: Use the CEO Method. There are three steps to the CEO Method: cut costs, earn more, and optimize. - CUT COSTS: Using our $50/month example above, the solution might be as simple as getting dinner & drinks out one less time per month. That's a simple change, and you can stop worrying about inflation. - EARN MORE: If there was one thing that’d be written on my gravestone, it’s this: There's a limit to how much you can cut, but no limit to how much you can earn. One option is finding a new job that pays better (which my [Find Your Dream Job]() program shows you how to do). Another is to start a side business (which my [Earnable]() program shows you how to do). Ultimately, earning more is your best protection against inflation, along with long-term, low-cost investing. - OPTIMIZE: If you're using my Rich Life System, another option is to take a bird's eye view of your finances and reduce your savings rate by a small amount (maybe 1%) and shift that to pay for inflation-impacted categories. (Check out [Money Coaching]() for more information about how this works.) My CEO Method puts you in control of your money. Calm, cool, and methodical I hope this has helped you take a fresh look at inflation and how it is (or isn't) impacting you. And that it’s empowered you to make meaningful changes in your life and finances instead of just freaking out. I'll write more about earning more this week since it's one of the most powerful levers you have — and one of the fastest ways to boost your Rich Life. More soon! 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