Inflation – Episode 534  

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today, we’re going to be talking about inflation. I heard one of the most shocking stories from a business owner that I’ll share with you in just a moment. Kim, why is this conversation pertinent right now? Well, because all of the news media is talking about inflation, either that it’s running wild or that it’s a problem or, you know, of course, some people think that it’s not a problem at all because it is the news. And so what the truth is, is a big question mark. So it’s always fun to talk about it because I love to bring up the two things that inflation actually benefits from. But I want to hear your story first.

[00:46] OK, so my story happened in a foreign country. I was in Argentina recently and all countries in the world. Argentina is one that is going through some of the highest inflation, double digit inflation per month that much. So I was talking with a business owner and what happens to give context, they use pesos and a lot of people, when they are trying to store wealth outside of, we’ll call it markets, precious metals, things like that, they will store some of their wealth in cash, but it will be U.S. dollars, so not their pesos, because every moment those things are sitting in their wallet, it’s going down in value. So I said to him, I said, so with your product, and I ask very direct, uncomfortable conversations to people I don’t even know, because what are

[01:40] they going to do? Say no, like, it doesn’t matter. And if they say yes, then I get to have a great conversation. So I said, so tell me about your business. Is it profitable? He says, yes. OK, well, are you storing some of your profits in cash? And this was the scary thing he said. He goes, no, I’m actually buying more supplies right now because inflation is going to get worse. And so instead of taking the risk of having cash, which, again, cash is stronger than their peso, the U.S. dollar, I’m going to buy physical goods because those could go up by a hundred percent versus my cash, maybe going up 10, 20 or 30 percent. So, Kim, that leads us to two things that you mentioned I’m very curious

[02:36] about. I know one of them. I’m going to hear the second. Well, you know, before I hit the two things that inflation benefits, I was thinking about two intangible things. You are talking about supplies which are very tangible. And so I want to lay out what I think the two tangible things are that inflation benefits first. And that’s something that you and I have shared on the podcast many times, which is food and water, like literally or Gatorade or whatever, literally bottles and bottles and bottles of water and food that can be stored are things that would be incredibly valuable for somebody that felt like supplies were going to be helpful in overcoming beating or at least maintaining pace with inflation.

[03:39] And the thing that’s challenging about inflation is that it affects everything. And so a lot of times people will come to me and say, I want investments that will beat inflation. Well, OK, understandable, because if you are having something that’s not beating it or at least maintaining it, then you may have a disconnect between the value of the thing and what it’s actually worth or the value that you paid for it and what it’s actually worth. And I believe that there are supplies, supplies for a business, which of course would extend beyond food and water, supplies for a family, which would be more food and water related, that will be available to help at least meet, if not beat, inflation. Does that make sense so far?

[04:27] That does make sense. Yes. And I assume that he meant supplies for his business, correct? He did. He meant the supplies for his business. Now, because of their situation, I even asked about bank financing and whatever else that that would be. You would be shocked to hear the bank, the interest rate, the bank charges. Can you take a stab at it? Just take a guess. Thirty five percent. That would be awesome. I think they would be really excited for thirty five percent. Oh, my. Yes, that’s scary. He goes, I go. So what is this? One hundred percent. He goes, that’d be nice. Two hundred percent interest. Oh, my word. And we complain about a seven point five percent mortgage. I know we’re a bunch of babies, aren’t we?

[05:16] Oh, that’s crazy. I was just in a course of financial advisors and a guy was there from Canada and we were complaining about our 28 to 34 percent tax brackets. And he was laughing at us because, you know, there are 45 to 55 in Canada all the time income tax brackets. So anyway, let me share the two intangible items that inflation benefits. The first is fixed mortgage payments. So think about your typical. Let’s just call it I’m going to use a thousand dollars because then you can multiply it times five or six or three or whatever your mortgage payment is your typical thousand dollar today. Fixed mortgage payment. Let’s say you got a 30 year fixed loan. And let’s say you’re even complaining because it is at seven point five percent

[06:13] and you wish it was at three point five in 30 years. That will feel like about three hundred and fifty dollars, you know, assuming just kind of an average inflation rate of three or four percent, which I know right now are a little higher, but there are other times when we’re a little bit lower. A thousand dollars will feel like three hundred and fifty dollars. So you can multiply that up based on how big your mortgage payment is. That’s incredible for a good impact that inflation has. Like the check that you’re writing is still going to be a thousand, but it’s going to feel like three hundred fifty dollars. Does that make sense? That makes sense, yes. And just for curiosity’s sake, when you calculate the impact of inflation,

[06:58] you have to use what’s called a present value calculator. A typical handheld calculator will not give you the perfectly accurate, exact and accurate. That was a good combination. Exact. There you go. Exact and accurate number. So and no, you cannot use a negative future value. Like people think that you can use negative future value to figure out inflation. No, you have to use present value calculator. So there’s that. Now, what else does inflation benefit? And it’s an intangible product called life insurance premiums, specifically whole life insurance premiums. So use the exact same numbers. Let’s say that you have a thousand dollar monthly premium for your whole life insurance. I’m not talking about the paid up addition that’s extra.

[07:52] I’m just talking about the premium. And we need to remember that premium builds cash value also. Well, that same thousand, and you can add as many zeros to that as you want or cut it in half if that’s better for you, is going to feel like three hundred and fifty dollars, assuming a three and a half, four percent inflation rate in the future, because that whole life premium is guaranteed never to change, guaranteed never to change. And so here again, you have and I suppose you could say a mortgage is a little bit more tangible because associated with our homes. But life insurance is about as intangible as you can get. And here you have an intangible product that flat out benefits from inflation.

[08:41] There you go. So did you just take the wind out of everyone’s sales of saying, what should I do? You know, you just listed that. And then you see the seven point five percent interest on a mortgage and that gets thrown out the window. Life insurance gets OK. So where’s the the left? Where’s the fight? Like, we don’t have anything to fight now. Good. Go do something better with your time. But but there is two pieces that I have read recently about inflation. One is from a meme that made me laugh. The second is a shocking argument or point that made me actually have a conversation around the dinner table. So the first one, a person was sitting around this meme. I think one of my friends sent it to me and said, finally,

[09:31] after working for 15 years and saving all my money, I was able to look at that home across the street and realize that I’m 15 years older because house costs have just gone up exponentially and people are feeling desperate or the interest rates are rising or whatever that may be. Well, that argument’s gone. Listen to this episode. Re-listen what you have to do. But the thinking of that is what came to our dinner table conversation from reading. And this is what the hidden problem of inflation has caused. You’ve probably heard this, too, which is millennials and Gen Z are losing hope. And so what they’re doing is the money that they would have used to save or to invest, they’re saying, I’m not going to get to have that big dream.

[10:28] So I’m going to live for today. And that money gets put back into the economy, but is living for today. Are you seeing that happen as well? Absolutely. And any time someone is living out of their checking account, where all their income goes into their checking account, they’re going to spend all their income. It doesn’t matter how many zeros are attached to that. And so, in fact, talk about stuff in social media. Todd told me that there’s some celebrity’s spouse that is going through divorce and she wants one hundred and twenty thousand dollars a month and feels like she has earned that because his income is X because something like eighty thousand dollars a month was spent at the spa. So it’s one of those things that can kind of wake us up to

[11:23] when you live out of your checking account and all your income goes into your checking account, you’re going to spend all of your income. And this is what’s happening. And so it’s so important that people have a changed perspective of life. And that is that building that emergency opportunity fund is the most important thing, not saving for retirement, because a 25 year old has no concept, no contextual space to look at the societally based description of retirement. A 25 year old cannot picture themselves at 65 or 75 or 85, which is 85 is really the age that we should be talking about. And furthermore, the life that is going to be lived between those 60 years, 25 to 85 absolutely is going to want emergency money and opportunity money.

[12:27] That’s so much better than retirement money. And so when you have that generation and you can help them understand that it’s saving for emergencies and opportunities that should happen, not saving for retirement, then you take the wind out of the sails of the inflation argument like we did in our earlier part of our discussion. It enables them to have more hope and hope is a mindset. Now, it’s maybe not a strategy, but it’s a mindset that must be in place first in order for the strategies to come along and support the environment. And so if there’s hope, then a save first strategy can come along with it. And then you can look at other places to store your dollars besides a bank, in other words, a life insurance company

[13:19] or somewhere better that will help you maintain purchasing power against inflation. And we can bring all this full circle into a very specific strategy with very concrete steps to take that are done monthly with whatever dollar figure is there. And that’s the other thing that I think for the millennials and the Gen Zs is they feel like your developer friend from our previous podcast, like, well, I don’t have any money, so I can’t do anything. Yes, you can. You can do one little thing every month. And that is to save first. It doesn’t matter, especially for the younger generation. If it’s $100, $500 per month, that is your starting point. It doesn’t need to be 100K for some big alternative investment

[14:09] that requires you to be an accredited investor. It can literally be a small monthly amount. Absolutely. You know, the inflation conversation, this is critical right now. And this is going to be critical for this time being for the election cycle that we’re having for the winter that’s coming up. Again, winter happens in finances on the balance sheet. Winter happens in our life. Winter happens to farmers, all of these areas. It’s critical. Now, you touched on something that was really important for sake of our conversation. I think what we’ll do is we’ll say for you as a listener, Kim mentioned. Yes, maybe you’ve saved a lot more money and you’re not certain about using a Roth IRA or maybe you’re not certain about that retirement account

[15:05] that’s through your company. And maybe you’ve set some money aside and you’re hearing these words, accredited investor or alternative investment. Go to hello at ProsperityThinkers.com and send an email. That email is just for podcast listeners right there. Send it there. Kim can answer those questions. But to touch on that a little bit, regardless of the situation, you’re right, has to be with the mind. But there are things that can put in place right now using Todd’s calculator of understanding the truth of numbers. We can understand the truth of investments and what we can control. What else can you put a stamp on of this episode so that listeners can come back and say, OK, I’ve got a grip on inflation.

[15:59] It’s not going to control me. I’ve got this. Well, I’ll bring up an acronym that I’ve used in lots of different ways. And it’s the word clue, C, L, U, E. So C stands for control. That’s the first part you mentioned. L can either stand for liquidity or legacy. So the younger set is going to be more interested in liquidity, the older set in legacy. U stands for use and E stands for equity. So what I mean by that is you want to control the money. You want it liquid and or legacy oriented. And those can sometimes be the same. You want to be able to use it for whatever it is that you want to use it for. Maybe that’s a trip to Europe when you’re 30 instead of when you’re 70. And then act like equity means that whatever the asset is,

[16:47] you can borrow against it. And just a point of fact, you cannot borrow against Roth IRAs, regular IRAs, 401Ks, 403Bs. All of the retirement plan space is unborrowable against, but there are a lot of other assets like life insurance and real estate that you can borrow against. So clue, C, L, U, E, control, liquidity, legacy, use and equity. This is so good. And for any of you that have a specific use case, meaning if you’re age 25 or you’re age 65, you’ve got a hundred dollars or a million dollars. You got to solve the problem. Send an email to hello at Prosperity Thinkers dot com. Again, for podcast listeners only explain what the problem is. A human being, Kim will also go out there, give you some feedback

[17:38] or a person on the team will get right away, help you understand. This inflation thing is no joke, has to get taken care of, control the right way, or it will control you. So, Kim, this is a good conversation. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you. Visit Prosperity Thinkers dot com.