Understanding Inflation: The Silent Wealth Destroyer
Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
When inflation is at 3%, a loaf of bread that costs $3.00 today will cost $3.09 in one year. While this seems small, the compounding effect over decades is massive.
Why it matters for Tax Freedom
Your Tax Freedom Day measures your burden to the government, but inflation measures your burden to the economy. If your salary doesn't increase at the same rate as inflation, you are effectively taking a pay cut every year.
To truly reach financial freedom, your investments must return more than the Tax Rate + Inflation Rate combined.