What were you up to in 2005? Maybe you spent your days humming the new Brittney Spears song Poison, standing in line to grab a ticket to Harry Potter and the Goblet of Fire, or checking out an odd new video website called YouTube. In 2005 George W. Bush started his second term in office, and it was a year no American would forget as our television screens filled with the tragic scenes of a devastated New Orleans after Hurricane Katrina. It was also a year when an average house cost $283,300. In 2015, just ten years later, the average cost of a new house in the United States had risen to $374,900. That is the steady march of inflation.
It was also a year when an average house cost $283,300. In 2015, just ten years later, the average cost of a new house in the United States had risen to $374,900. That is the steady march of inflation. Why is inflation important, and how does it impact your life?
The prices of goods and services are constantly changing. You’ll notice this in a big way just by keeping track of the prices at your local gas station. They change by the day. For most other products, the change is slower and less noticeable. It’s easy to miss the fact that prices as a whole tend to continually rise year after year.
At WIFE.org, we’ve recently updated our inflation calculator, which lets you compare the prices of a handful of standard goods for any timeframe you choose between 1900 and 2015. Just comparing a ten-year jump between 2005 and 2015 yields some surprising results. For instance, the average price of a home rose 32%, while the average price of a car only rose 12.5%.
Why You Need noticeablee of Inflation
Even though inflation isn’t usually noticeably on a day-to-day basis, it does make a significant difference over time. Think about what would happen if your income stayed the same over ten years while prices for most basic goods continued to increase with inflation. In reality, you wouldn’t really be making the same amount of money. You would be making less, because you would be forced to pay more for the goods and services you need.
This is a primary reason why it usually isn’t a good idea to save a majority of your money in a savings account or in your sock drawer. Interest rates are at an all-time low, so it is likely you’ll be earning 1% interest or less on the money in your savings account, and you’ll be earning absolutely zero interest in your sock drawer. If your savings sat in your sock drawer from 2005 to today, it would be able to purchase 32% less house, 12.5% less car, and 12.8% less bread at the grocery store.
A smart saver wants their savings to at least keep up with inflation and ideally beat inflation! That is why it is so important to invest in growth vehicles, such as bonds and stocks with the assistance of an experience financial planner. (Learn how Understanding the Female Brain Can Make You a More Savvy Investor.)
Take some time and play around with the WIFE.org inflation calculator, and you’ll quickly see the impact inflation has on the prices of the things you buy every day. For a real wallop, put in your birth year and see how much an average home cost back then!
Need help figuring out what to do with all those dollar bills tucked away in your sock drawer? Visit our Investment and Savings Article Archive to get some great ideas.