Categories
Cryptocurrency

Best Cryptocurrencies To Invest In

Bitcoin and other cryptocurrencies are a hot topic right now. Bitcoin is near its all-time high of $20,000 and many experts predict it will soar much higher in price. Although we can’t advise you on what you should invest in, we will share some options for the best cryptocurrencies to invest in (there are several). In addition, we will discuss what cryptocurrency is, the pros and cons of owning cryptocurrency and some future predictions.

Fifty years ago, investing was simple: stocks, bonds and real estate. However, today the investment process has become much more complicated. Moreover, there are an infinite number of investment choices that can be difficult to understand. One new investment is Bitcoin and cryptocurrencies.

It seems clear that the future is bright for Bitcoin and Ethereum, as well as several other cryptocurrencies. We will discuss why these two cryptocurrencies deserve serious consideration as the best cryptocurrencies to invest in. In addition, we will also briefly discuss some other cryptocurrencies worth noting.

What is Cryptocurrency?

Cryptocurrency is a digital asset. Payments occur between individuals on the internet. In addition, the best cryptocurrency uses cryptography to secure transactions on a network. Block chain technology is part of what makes the network secure. Miners use powerful computers to solve advanced equations in order to earn Bitcoin or other cryptocurrencies. Finally, mining makes the distributed ledger network secure. In addition, it ensures that transactions are complete. As a result, no one can cheat the system.

What is Block Chain?

The block chain stores data on a public database. The blocks of information include transaction data, participant data and distinguishing data. Moreover, each block of data stores thousands of transactions under cryptographic lock and key. A network of computers operates the blockchain. They make the network run and keep it secure by solving algorithmic hashes. The network computers earn cryptocurrency for their work. Finally, the bitcoin block chain technology uses a distributed ledger. Bitcoin’s network security hinges on the distributed ledger that the network participates in.

Bitcoin: A Peer-to-Peer Electronic Payment System Created by Satoshi Nakamoto

Bitcoin is an open-source, block chain-based technology that was designed as a peer-to-peer payment system. It is designed to be a decentralized electronic payment method that can be conducted semi-anonymously among individuals. Bitcoin is digital cash. Many consider Bitcoin to be one of the best cryptocurrencies to invest in.

It uses block chain technology to maintain its function. For users to send and receive bitcoin, the block chain depends on miners. Computers are used by miners to complete complex calculations which build blocks on the block chain. As a reward, the miners receive Bitcoin as payment when each block is completed.

Bitcoin was introduced to the world in 2009 by Satoshi Nakamoto in a 9-page white paper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Bitcoin was the first cryptocurrency to experience widespread use and adoption. However, its use case has evolved over the years from a peer-to-peer payment method to a store of value model. Many Bitcoin users hold bitcoin much like you would hold silver or gold in an investment portfolio.

Reasons Why Bitcoin May Be One of the Best Cryptocurrencies to Invest In

  • Exponential growth and adoption since 2009
  • $240 Billion market capitalization
  • Proven electronic payment method
  • A store of value much like gold
  • Deflationary money – only 21 million Bitcoins
  • Replaces the US Dollar as World Reserve Currency
  • Reasonable privacy
  • Independence from banks and governments
  • Border-less payment system
  • Low fees
  • Meets all the requirements of the definition of money

Ethereum: A Block Chain Project That Uses Smart Contracts to Power Other Projects

Ethereum is an open-source, decentralized block chain project. It is known for its smart contracts. It provides open access to money, via the Ether cryptocurrency coin (ETH), and technology, exemplified by the thousands of applications that are operating on the Ethereum network. The ETH coin of Ethereum is second only to bitcoin in market capitalization.

Like Bitcoin, Ethereum is a Proof of Work consensus system. This means that powerful computers all over the world are continuously solving complexed equations in order to build blocks on the Ethereum block chain. Whichever machine or miner solves the problem quickest, completes the block and receives a reward as payment: ETH coin.

Although Ethereum shares some features with Bitcoin, such as being able to make peer-to-peer transactions, they serve different purposes and audiences. Bitcoin was the original decentralized payment system. As a result, banks do not manage payments. Ethereum’s primary purpose is to serve as the core block chain on which newer projects operate.

Ethereum uses a payment system for ETH. In addition, it implements smart contracts which allows entirely new projects to run on top of the Ethereum block chain. For example, in November 2017, the decentralized application “CryptoKitties” was launched. It is a digital collecting and trading app of virtual felines that works on Ethereum. As a result, Ethereum may be one of the best cryptocurrencies to invest in.

Reasons Why Ethereum May Be One of the Best Cryptocurrencies to Invest in

  • Industry leader in smart contracts
  • Widespread use and adoption
  • $40 Billion market capitalization
  • Home of block chain decentralized applications (dapps)
  • Well established decentralized payment network
  • Serves as the block chain base for hundreds of projects
  • Independence from Banks
  • Border-less Payments
  • Low Fees

Other Cryptocurrencies to Consider

Here are some other cryptocurrencies that are worth looking at more deeply. Although Bitcoin is the most dominant and most secure cryptocurrency, there are many other cryptocurrencies that have strong security and strong use case value. A cryptocurrency investment portfolio may include other cryptocurrencies.

Cardano (ADA)

Named after Gerolamo Cardano, a 16th century Italian polymath, the Cardano project began in 2015. It is an open-source software project. Moreover, it innovates the design of cryptocurrency. Cardano has a long-term plan called the Road Map. Cardano’s most notorious feature is its implementation of peer-reviewed research. Research and peer review are a part of project development. It has a $3 Billion market capitalization.

A team of academics, researchers and developers managed Cardano. They focus on solving cryptocurrency problems. Moreover, Cardano doesn’t focus on one use case scenario for cryptocurrency; instead it appears to be tacking many problems at once, such as currency, proof of stake, smart contracts, scalability, security and even scripting. In addition, Cardano uses the delegated proof-of-stake method to maintain the network functionality. This is different because it is more efficient for electricity consumption. Cardano is definitely one to watch if you are looking for one of the best cryptocurrencies to invest in.

Monero (XMR)

Created in 2014 from a fork in the Bitcoin block chain, Monero is a privacy coin. Monero uses what it calls an “obfuscated public ledger” which makes transactions of Monero private. Moreover, Monero is a tested privacy payment method. The project has longevity and a working record of privacy.

Monero gets a bad reputation at times. For example, it has been used on the dark web as an illegal payment method. However, it should be noted that paper currency such as the US Dollar can also be used for illegal purposes. Privacy for legal transactions is an important aspect for money and Monero is the foremost privacy cryptocurrency on the web. Monero is definitely one of the best cryptocurrencies to invest in for those who love privacy.

XRP (XRP)

XRP is a currency that operates on a digital payment platform known as RippleNet. The company known as Ripple operates XRP. The currency is not technically a cryptocurrency and doesn’t operate on a block chain. Instead, XRP is a centralized, distributed ledger technology. XRP is an engineered payment system. It is a new competitor to the SWIFT payment system. The SWIFT system is used in international banking.

Chainlink (LINK)

Developed in 2017, Chainlink is a decentralized network that connects smart contracts with real world data. Furthermore, the Chainlink decentralized oracle network is operated by node operators. In addition, operators that maintain nodes are paid LINK cryptocurrency. The nodes connect the system like links in a chain. Chainlink runs on the Ethereum network and plays a critical role in execution of smart contracts. It is one of the new rising stars of the cryptocurrency revolution and one of the best cryptocurrencies to invest in.

Polkadot (DOT)

Another new rising star in the cryptocurrency space is Polkadot. The Web3 Foundation created Polkadot. Its primary function is to facilitate the operation of block chains together. The DOT coin functions in three ways: staking, bonding and networking. Finally, Polkadot contains special tools like specialization, scale and inoperability which act as catalysts between block chains.

Binance Coin (BNB)

Binance coin is a utility token. It is used to pay for Binance exchange fees. In addition, it also helps power the Binance decentralized exchange (DEX). The Binance coin is a deflationary coin. It is burned frequently by Binance. Part of the reason that BNB is so popular and successful is due the success of the Binance exchange. Binance is definitely a strong consideration when looking for one of the best cryptocurrencies to invest in.

Pros of Owning Cryptocurrency

Owning Cryptocurrencies May Save A Failing System

Owning cryptocurrencies requires that you have a future vision that is radically different than our current banking system. In addition, cryptocurrency is inherently risky and volatile for investors. However, many believe that cryptocurrency investment is a vote for monetary freedom and independence from governments.

Bitcoin doesn’t require using a bank; the bitcoin holder is the bank. Making borderless payments between friends became easier and more private. In addition, Bitcoin is deflationary, with only 21 million Bitcoins available for use. And, if you are starting to have doubts about government money printing and overspending, then Bitcoin is an obvious candidate for safe-haven status.

Cons of Owning Cryptocurrency

Fraud, Theft and Volatility Are Still Issues with Cryptocurrencies

There are some cons to owning cryptocurrency. In addition, cryptocurrency and the block chain space are a very new industry. Bitcoin is only 11 years old and there have been growing pains in the space. First, cryptocurrency has been vulnerable to fraud in the past. For example, $800 Million worth of Bitcoin was stolen from “Mt. Gox” crypto exchange in 2014. Second, scams have been a problem in the industry, especially with new projects. Finally, price volatility has frightened away many new potential Bitcoin users.

Best Cryptocurrencies to Invest in 2020/2021

Currently, in late 2020, Bitcoin is trading around $18,000 per Bitcoin. It peaked in price around approximately $20,000/Bitcoin in late 2017. Bitcoin has been on an upward trajectory lately and has neared its all-time high on several occasions. There are many analysts who believe it could go much higher. But even more importantly, Bitcoin and other cryptocurrency may break the banking chains that imprison us today. And it’s no longer a conspiracy theory to discuss cryptocurrency. Respected investors are taking it seriously like never before and many believe that Bitcoin is one of the best cryptocurrencies to invest in for securing your wealth.

Future Predictions of Bitcoin and Ethereum Prices

Reputable Investors Foresee Exponential Growth in Bitcoin and Ethereum Markets

It seems clear that in 2021, Bitcoin and Ethereum will begin the next phase of expansion and adoption. As a result, the price of both cryptocurrencies will likely go much, much higher. These are certainly important when determining the best cryptocurrencies to invest in.

Anthony Pompliano and Max Keiser, two well-known investors in the Bitcoin space believe that Bitcoin price will exceed $100,000 in the next few years. Other investors like Mike Novogratz and Chamath Palihapitiya believe Bitcoin price is destined to go even higher to levels like $400,000 and $1,000,000, respectively.

As for Ethereum, investors are optimistic about its future price as well. Because Ethereum’s market capitalization is only $40 Billion, there is much room for growth. Continual adoption of Ethereum by institutional investors could easily lead to a $200 Billion market capitalization, equating to a $1,500 ETH price. Investors such as Nigel Green and Blockfyre co-founder Simon Dedic predicted much higher prices ($2,500 – $9,000) for Ethereum in the future.

It should be noted that several of the investors mentioned are worth Billions cumulatively and have a clear track record of investing in markets. As a result, their predictions should be seriously considered.

Bitcoin Continues to Grow

There are a couple of things to understand about Bitcoin growth. First, Bitcoin is growing in popularity and use worldwide. Users are adopting Bitcoin as a store of value like gold and using it as a payment method in places where banks don’t exist. Second, Bitcoin is growing in price.

When users began mining Bitcoin on laptops in 2009, it had little value. Yet today 1 Bitcoin can be exchanged for $12,000! Around 2020, billions of Dollars of institutional money began to flow into cryptocurrency investment.

Examples of Institutional Money Investments in Bitcoin:

The list of investors and cryptocurrency investment continues to grow each day. When considering some of the best cryptocurrencies to invest in, look at what professionals invest in as well.

Bitcoin Exchanges and More Information

Hopefully this article has given you some ideas about the best cryptocurrencies to invest in. When making investing decisions it is important to do your own research and determine for yourself what is a good investment.

In addition, there are many exchanges that can be used to purchase cryptocurrency. Binance, Gemini, Kraken, Coinbase and so many more. Please do your research if you decide to invest. There are many scams in the crypto industry that are searching for an easy mark. If you want to learn more about Bitcoin and cryptocurrency, there are more articles by Piggy Bank Coins below. Thanks for reading and good luck!

Read More:

Bitcoin

Best Cryptocurrency

Prediction of Bitcoin Price

The Fastest Growing Cryptocurrency

Top 10 Cryptocurrency

How to Become a Millionaire from Nothing

One World Currency

Cardano ADA News

Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.

Categories
Budgeting

Christmas Budget

We will discuss creating a Christmas budget, getting organized, planning ahead, and saving money incrementally to avoid racking up debt on a credit card.

Do you over spend each Christmas holiday season? Is your credit card balance going higher and higher? You can save a ton of money by simply creating a spending limit and saving cash for Christmas. In addition, you won’t have to pay interest on a credit card if you don’t use it.

Every year, social pressure dictates that you buy family members and friends the perfect gift for Christmas. As a result, credit card debt balances increase. While shopping can be fun, your bank account gets punished. In addition, it can feel like you are working all the time just to pay off holiday debt.

But a Christmas budget doesn’t have to be painful. Here are some tips for how making a simple budget and getting organized can help you save for Christmas and avoid using the credit card to pay for gifts. In addition, we’ll show you how to save incrementally today so that you can pay cash for each gift you buy.

Getting Organized

First, a Christmas budget has to start with organization. Make a list of everyone for whom you want to buy a gift. You want to know exactly what you are buying for each person. If you don’t know what, then you can set a spending limit for each person. This will help keep you under budget and out of credit card debt.

Ultimately, you want to calculate your goal in dollars. For example, if you are buying 5 Christmas presents, and you plan to spend $50 per person, then your goal is to save $250 (5 X $50 = $250).

Create a Christmas Budget

Your Christmas Budget Will Include Income, Expenses and Help You Calculate Disposable Income

Next, you should create a Christmas budget. If you have a normal monthly budget already set up, then use what you have. If budgeting is new to you, then it may take a little more time to gather what you need for the Christmas budget.

Finally, when creating a Christmas budget, you need to know two things: sources of income (money you receive) and expenses (what you spend). Budgets are normally done on a monthly basis, but you can make it weekly or bimonthly too. Many expenses will vary from month to month, so just do your best to estimate an average. For example, your electric bill may be high in the Summer but less in the spring. Try to find a happy medium.

Figuring out what your income looks like is pretty easy. You will probably spend more time tracking down expenses. A good gauge of how you spend is to look at the past 6 months of bank statements and receipts. If you spent $50 this month on coffee, then chances are that you spend that amount every month on coffee. Once you know you know the difference between your income and expenses, budgeting for Christmas is a snap.

Tweaking the Christmas Budget

Finally, once you’ve categorized your expenses into groups like “utilities,” “housing,” “entertainment,” etc., you can then compare your total expenses to the total income. Moreover, this will tell you how much disposable income you have to work with (or if you are going into debt). Your disposable income is extra money that you have leftover at the end of each month. Disposable income will be the source of funds you use to buy Christmas gifts.

Saving

Calculate How Much to Save Each Month and Have It Automatically Deposited in Savings

Hopefully this Christmas budget exercise has helped you figure out how much disposable income you have leftover each month to use toward gifts.

Let’s say that after you have run your budget numbers, you’ve determined that you have disposable income each month of $100. In addition, we know from our example above that we need to save $250 to pay for all of our Christmas shopping list. We can quickly calculate that we need to save for 2 ½ months to reach our goal of $250 ($250/$100 = 2.5 months).

One simple way to save is to develop good habits. One of the habits that you want to form that will help you reach your goal is to start saving each paycheck. Make it a habit to take the amount of money determined for reaching your goal out each paycheck and save it. After a short time, you will realize that you don’t even miss the money.

One trick to make saving easy is to set up an automatic money transfer to your savings account. For example, each time your paycheck is deposited into your checking account, have an automatic transfer set up that moves money into your savings account. Some people even have a savings account that is in a different bank to reduce the temptation of raiding the account.

Finally, saving a small portion of your regular earnings is far from a new concept. Financially successful people have been doing it for hundreds or thousands of years. Read The Richest Man in Babylon to learn more.

Cut Expenses and Control Spending

List Items to Remove from Your Budget: Memberships, Subscriptions, Etc.

If you are having trouble finding extra money in your budget, it may be time to cut expenses. No matter what kind of budget you have, its vitally important that you cut expenses. First, start by finding areas in your life where you can make cuts. It is helpful to make a list of what expenses are required and not required. For example, paying for electricity is required; having a spa membership is not. Ideas for Budget Items to Cut:

  • Memberships (Spa, Gym, Entertainment, etc.)
  • Subscriptions (Magazines, news, etc.)
  • Eating Out
  • Cable
  • New credit card spending
  • Traveling/vacations

Increase Your Income

Some people who completed their budget may realize that they don’t have enough money to cover all the gifts. Perhaps all your money goes to bills each month, or you just have a lot of family and friends for which to buy gifts.

The best ways to make more money fast:

  • Sell Things You Don’t Need
  • Rent Out Your Room or Car
  • A Side Hustle job
  • Borrow Money (Last Resort)

The quickest way to get cash and how to achieve success with a Christmas budget is to sell things. Take an inventory of what you have at home that isn’t needed. Cell phones, gift cards and electronics are quick sellers. Other items that you may have not considered include:

  • Jewelry
  • Vintage toys
  • Fitness equipment
  • Collectibles
  • Name Brand Items (Apple, Bose, Tiffany, Etc.)

First, the common places to sell the items include eBay, Etsy, LetGo, Swappa, Gift Card Granny and Gazelle. Each of these sellers offers a phone app so you can easily manage purchases directly from your cell phone. The money from each sale goes directly to your bank account.

Earn Extra Money Renting an Extra Room and Rent Your Car

If you have a spare room or place to lease you can rent it out. Many people think of AirBnB as a vacation rental site. However, you can also rent out an extra room using AirBnB, the local paper or Craigslist to earn extra cash. Note: there’s a lot of issues to unpack regarding renting a room to a stranger, so make sure you do your research if you decide to rent out a room.

Have a car that you hardly use? You can also rent your car. Sites like Turo allow you to list your vehicle on their site and earn extra cash from rental fees. Vehicle protection plans are available and you earn approximately 65-85% of the trip price.

Great Ways to Earn Extra Money Include Seasonal Work, Side Hustles and Starting a Business

One dirty little secret that successful people don’t share about their success is what they had to do to become successful. Successful people often work 2-3 jobs, work long hours and work to do things that no one else wanted to do.

It’s not glamorous to deliver pizzas or wash cars when you have a master’s degree from a prominent university. But sometimes to get ahead you have to swallow your pride and do what must be done. I’m not suggesting that you do anything illegal to make money; on the contrary, there are plenty of legal jobs that will earn real money for you. Note: these ideas don’t earn money as quickly as selling your personal items.

Work a Side Hustle

Having a side hustle Has become more common these days. Unfortunately, many people work a second job simply to make ends meet. But there’s no shame in working hard to get ahead. Common side hustles today include:

  • Uber/Lyft Driver
  • Food/Grocery Delivery
  • Dog Walking and Sitting
  • Babysitting
  • House Cleaning
  • Gig Economy Services (Fiverr)
  • Freelance Work Online
  • Tutoring
  • Wash and Detail Cars

Hopefully you now have lots of great ideas for how to manage a Christmas budget. As you can see, getting organized, creating a budget and working a little extra can be great way to help you pay for Christmas gifts. In addition, it will keep you out of debt.

Read More:

Ways to Save Money on a Tight Budget

10 Things to Know Before Starting a Budget

The Best Budget App

How to Make $200 Fast

Best Budget Planner

Home Buying Power

Financial Planning Services

Value Investing Books

Wealth Building Cornerstones

Best Investing Books of All Time

How to Become a Millionaire from Nothing

How Much Savings You Should Have at 40

Why Saving Money is Important

Debt Elimination

Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.

Categories
Money Taxes

Inflation Tax

We will discuss what the inflation tax is and the three different types of inflation. We will also talk about how inflation affects you personally and review some ways you can fight back against inflation by looking at deflationary assets.

The Inflation Tax

The inflation tax is not an official tax levied by the government. Many governments levy taxes on income, property, sales and other transactions. However, the inflation tax is very different. It is when the currency in your wallet or in your savings account loses value over time through inflation.

What is inflation?

Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage means that a unit of currency effectively buys less than it did in prior periods. –Investopedia

In order to simplify understanding inflation, we will discuss three types of inflation:

  • Demand-Pull Inflation
  • Cost-Push Inflation and
  • Built-in Inflation

Understanding Inflation and the Inflation Tax

There will be more detail given about the three types of inflation later in the article. For now, we will discuss how the inflation tax can affect you. There are many simple ways to understand the inflation tax. But here is one true story that may help you understand how inflation affects you on a personal level.

In the Piggy Bank Coins article entitled, “How Much Was a Dollar Worth in 1960?”, we discussed the purchasing power of the dollar. The purchasing power of a Dollar in 1960 was compared to that of 2020. We shared the story of Mike Maloney’s father who bought a home in the late 1950s at a price that was equivalent to his annual salary.

As an example, Mr. Maloney displays his father’s 1955 tax return. His father was an auto parts store manager in Salem, Oregon during this time. He earned approximately $9,600 per year.

-Consumer Price Comparison, 1960 vs. 2020, -Piggy Bank Coins article entitled, “How Much Was a Dollar Worth in 1960?”

Home Prices In 1960 vs. 2020

What’s interesting is the average home cost during this time period in comparison with his [Maloney’s Father’s] salary. According to US Census Bureau data, the median price for a single-family home in Oregon ranged between $6,800 in 1950 and $10,500 in 1960. Moreover, his father’s annual salary was almost equal to the median home price during this time. Now, consider the average salary today and the price of homes. In contrast, could you purchase a home with your annual salary? Clearly things have changed and Americans are becoming poorer.

Basically, in 1960 the cost of a simple home was equal to a manager’s salary. We all know that you can’t buy a home today on a manager’s salary! This is the power of inflation. In some ways inflation can benefit you or be negligible if you own assets; however, if you hold currency like the US Dollar, the inflation tax is in effect and your currency is losing its value.

Currency Inflation

One thing that significantly affects inflation and leads to the inflation tax is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses purchasing power when money is printed by the government and further exacerbates the inflation tax situation.

On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme.

Consumer Price Index

According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).

“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” -The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)

A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1920 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty.

The United States Federal Reserve Bank Aims For 2% Inflation

The Federal Reserve Bank believes that we must have inflation to promote stability and predictability in the economy. Their goal is to have 2% inflation each year.

The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy. – Federal Reserve Website

The Federal Reserve’s Tools of Inflation: Money Printing and Interest Rates

The Federal Reserve Bank’s most powerful tool for creating inflation is a two-pronged approach. First, they have the power to raise and lower interest rates. Increasing or decreasing interest rates has the effect of accelerating or decelerating the American economy. If they raise interest rates, people tend to borrow less and it becomes more expensive to do business. As a result, there is a chilling effect on the economy; however, if the Federal Reserve lowers interest rates, individuals (and businesses) find it easier to get capital to do business, and the economic machine is powered up, so to speak.

The other powerful tool that the Federal Reserve has is to print money. Typically, when they print more money, there is more money in the economy. The velocity of money increases and people tend to have more money. With more money in the system, the economy is stimulated.

Inflation Calculator

The US Dollar Has Declined in Purchasing Power since 1913; the Stated CPI Does Not Reflect Real Price Increases

In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time.

Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic.

https://piggybankcoins.com/wp-content/uploads/2020/11/1960-2020-PRICE-Comparison-1-494x1024.jpg?d526e1&d526e1

How You May Experience Inflation Tax

Sometimes when we think about inflation, we think of what can be purchased directly with our national currency. For example, we might notice that last week fuel cost only $3/gallon, whereas, this week a gallon of fuel increased to $3.50. This is how consumers most often notice inflation. However, don’t get too caught up in measuring inflation by just using currency.

Three Types of Inflation

As stated earlier in the article, there are three types of inflation: demand-pull inflation, cost-push inflation and built-in inflation. These types of inflation are provided as a generalized example so that you can better understand the types of inflation. However, economists and financial experts have other names for types of inflation. Let’s talk about these three types of inflation.

Demand-Pull Inflation

One of the types of inflation is called Demand-Pull Inflation. When this kind of inflation happens, demand for goods and services outpace the production capacity. In effect, a gap is created between supply and demand in the economy, which puts stress on the price. As a result, prices go higher following the demand from people or businesses who want a good or service. This leads to price inflation.

Cost-Push Inflation

Another one of the types of inflation is called cost-push inflation. When prices increase in the production process, it forces people to spend more and leads to inflation of money. For example, imagine a bakery that uses sugar to make cookies. If the price of sugar doubled in a short period, it would cause the bake to have to increase the price of the cookies she sold dramatically to maintain profitability. This is one of the most common types of inflation.

Built-In Inflation

Finally, one of the last types of inflation is called built-in inflation. When the price of products or services increases, workers want to increase their wages. For example, if it cost a worker more to drive to work because of high gas prices, and it cost more to buy clothing for work, then a worker will want to earn more money at his job.

How Do You Win Against the Inflation Tax?

Seek Shelter in Deflationary Assets Such as Gold, Silver, Bitcoin and Real Estate.

There are some investments and things that you can own that weather inflation better than currency. For example, for hundreds of years, owning gold and silver has been a way to avoid currency inflation. Gold and silver both have a long history of maintaining their value when currencies became inflated.

Bitcoin

Another alternative to gold and silver that many consider inflation-proof is Bitcoin. In the past few years, many have begun to use bitcoin like gold – a store of value. In fact, Bitcoin has many of the positive properties that gold has. It is a store of value, it can be a medium of exchange, it can be a unit of account, there’s a limited supply, it is uniform, acceptable, divisible and portable, etc.

Both Bitcoin and gold have a finite, limited supply. As a result, this means that they cannot be subject to inflation. If there is only so much gold, silver and bitcoin, it is by definition, deflationary. Being deflationary means that as the supply of the commodity dwindles, the value and demand for each increase. This is not true of currencies like the US Dollar.

Real Estate

Even something like real estate can have a deflationary affect when compared to US Dollars. Real estate has a long history of maintaining its value over time as compared to the Dollar. However, choose wisely; many believe that there is currently a bubble in the United States real estate market. Prices for real estate in many cities today are considered to be over-priced and inflated.

Final Thoughts on the Inflation Tax

As you can see, the inflation tax is a real phenomenon that can affect your personal finances. There are three types of inflation that can occur. Each of these scenarios can quietly steal money from your savings. As a result, it is important to have a plan to address inflation and a place to invest to fight back against the types of inflation.

Read More:

US Dollar History: How the Dollar Became the World Reserve Currency

How Much Savings You Should Have at 40

Ways to Save Money on a Tight Budget

Best Budget Planner

Home Buying Power

Purchasing Power Risk

Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.