How Not To Let Inflation Erode Your Household Wealth
According to an article by Yahoo Finance, inflation will make these seven assets unaffordable in the next 10 years. As such you have a big decision to make. Do you either sit idle and complain about the changing dynamics or do you shake off the angst and engage in writing the future?
For example, one of the biggest complaints in 2024 relates to home values going up nearly 40% over the last 5 years. If you are a renter, this is bad news. However, if you are an investor or homeowner, this is amazing news. The goal of owning any asset is growth. Earning an 8 percent rate of return on a home you purchased for $325,000 in 2019, would have netted $130,000 in capital appreciation by 2024. Again that’s a good thing, especially considering those gains are way more than the typical raise for the same period.
While it’s easier to say that prices suck and the world is seemingly against you and your champagne dreams, it’s hard to double down on knowledge and pivot. Here are those seven elements that will change with inflation in the next couple of years:
1. REAL ESTATE
With the median home price soaring over $428,000, up from last year, getting your foot in the door is becoming a distant dream for the middle class. According to Redfin, the US median home price was $412,000 in September 2023. That’s an increase of 2% over last year even though there were more than 300,000 fewer homes on the market.
At this rate, the future promises to be more expensive. By 2029, US median home prices will exceed $545,000.
Buying as soon as possible will become imperative if you are seeking to build generational wealth.
The goal is to improve your debt-to-income ratio in 2024 and at least purchase a 2/2 condo that’s no more than $275,000. At least this way, your foot will be in the door.
If you are already a homeowner, pay attention to potential replacements such as the AC, water heater, or roof. It’s not enough to own a home, you have to maintain it. That’s where the value comes from in addition to keeping home expenses relatively fixed.
2. VEHICLES AND TRANSPORTATION
According to a new report by S&P Global Mobility, the combined average age of passenger cars and light trucks has reached a record high of 12.6 years. It’s the highest that it has ever been. If not now, Americans will soon need a replacement.
The average monthly car payment for new cars has peaked at a record $794. With vehicle technology advancing rapidly, global demand, and chip shortages growing, the upward pressure on prices is enormous. By 2029 with an inflation of 2.25% annually, we will see prices hit as $900 per month. This amount doesn’t even include car insurance.
My wife and I purchased a new car in 2023. Our total monthly auto cost exceeds $1,100. If you can buy Used as long as it’s well maintained and the miles are low, you will fare better than most. Consider a hybrid over EV since the infrastructure is not there yet. This works well if you have a garage.
Park, Charge, and go Solar.
3. VACATIONS AND FAMILY TRIPS
Inflation is also affecting how Americans travel. Along with the backlash of ‘Over Tourism’, I expect that fees and taxes are going to be added to an already expensive tab.
A large influx of tourists (likely due to Instagram) can have negative consequences on both the environment and the locals who live there.
While some negative effects can include pollution and damage to historical sites, Overtourism also led to a rise in the prices of goods and services, housing shortages, and even local displacement.
The locals aren’t too happy. Protests and violence are mounting.
The average cost of a one-week vacation for one person is around $1,250 to $2,000. A vacation for two people can easily set you back $4,000-$7,500. While cost can vary depending on the destination and time of year, a family of four people can expect to pay upwards of $12,500.
With Airfares increasing by 25% since 2022, you can expect to pay $5,000 for one person, $12,500 for two, and $17.500 for four on your 2030 itinerary. To save on cost, try to do micro trips. Weekend gateways or 5-day trips are fine. Additionally try not to get roped into the next IG destination.
4. HEALTHCARE EXPENSES
According to a 2022 report from the Centers for Medicare and Medicaid Services (CMS), national healthcare spending in the US is expected to reach $6.8 trillion by 2030, growing at an average annual rate of 5.1% from 2021–2030.
In 2022, the average cost of healthcare for one person was $13,493, an increase of 4.1% from the prior year. The average family now spends over $20,000 per year on healthcare premiums and out-of-pocket expenses. Even at 4.5%, you can expect to add an extra $4,000 to your healthcare cost by 2029 for a total of $24,000 or about $2,000 per month.
This doesn’t even include long-term care. My wife and I opted to have a Health Savings Account just in case. You really can’t spend your way out of rising inflation. It comes down to long-term strategy. Wealth solution? Take better care of yourself. Mind what you eat and take notes of the prior generation’s health issues.
It pays to be prepared.
5. EDUCATION: DAYCARE VS PUBLIC AND/OR PRIVATE SCHOOL
The average cost of daycare in the US varies by location and type of care and has been increasing for decades. In 2023, the average weekly cost of daycare was $321, or about $1,300 per month. Once you pay that tab, parents have to contend with the private or public school dilemma. The average cost of private school tuition in the US is around $12,350 per year.
You get what you pay for.
On the collegiate side, the average cost of attendance, which includes tuition, fees, room, and board, is $24,030. If the student lives on campus, the average cost is $27,146 per year or $108,584 over four years. If you opt to go out of state, the average cost of attendance is $29,150 for tuition and fees, and $45,708 per year for a student living on campus, or $182,832 over four years. Private institutions are worse; the average cost of attendance is $60,420, and tuition and fees average $42,162.
With inflation, expect to pay a hefty sum. It’s a number that I couldn’t even begin to speculate about. When you see your kids, just look at them as a million-dollar investment. If you don’t invest now, it will only cost you more in the future.
While some costs are unavoidable, the best investment is time. Be engaged in your kid’s development from swimming lessons, to reading, debate teams, cooking, and team sports. Every element you add becomes a tool that they can use in the future.
6. RETIREMENT SAVINGS
The average person believes they need at least $1.7 million to retire comfortably, up from $1.4 million just five years ago. The truth, if you want to know, it will cost them more than $2 million. How do we get this number?
Most Americans define the subjective ‘comfortable’ lifestyle at a price tag of $80,000 per year. With an inflation rate of 4 percent, that comfort escalates to $97,332 by 2030. When you retire, you can expect to retain nearly 80 percent of those expenses. You would need a total savings of at least $2.4 million with a SMART financial strategy if you hope to pay your $175,000 annual expenses in 2044. This is me being generous, in full transparency, $3.4 Million Became the Price of the American Dream.
The future is expensive AF!
Make sure you are front-loading at least 25% of your gross pay into your savings for the future. Craft a plan. Know your numbers and pace yourself. Being broke in old age will be difficult for a lot of people.
7. SAFE INVESTMENTS VS INFLATION
The days of reliable, low-risk investments yielding good returns are fading.
This is why diversifying with multiple income streams is important. Your 9-5 cannot be your only source of income. Starting a side hustle with my online business is what completely changed my life. It’s allowed my family to break out of the middle-class trap and live a life without having to worry about affording our family vacations or our kids’ braces.
You can’t be too risky either, you merely have to be engaged in how money moves today. You can’t survive inflation by saving in your local bank at 0.01%. Even worse, you can’t build real wealth by throwing your hopes and dreams into meme stocks or a Sou-Sou. If you are asking yourself what a Sou-Sou is or isn’t, just don’t. It’s not worth the effort.
When it comes to building wealth, focus on actionable steps. Prepare in times of peace. Never overdose on your current success i.e. raises, or promotions. And always do what you NEED to do, before you do what you WANT to do. I promise putting your NEEDS first will open up more doors for your WANTS category.
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