Your Financial Future: Soaring prices impact all areas of life
This is the last column before we reach the 4th of July.
This is often seen as the middle of summer, although officially, summer just began a week and a half ago. Many people go on vacation or host family reunions and other picnic activities. For many people, this is when the major impact of runaway inflation will hit home.
It is estimated that a backyard picnic for 10 people will cost 17% more this year than last. Gas prices have not climbed as fast the last week or two, but are still at historic highs for this time of year. While we hear that inflation is a little over 8%, it is much higher because there are many blind items. Retailers consider 鈥渂lind items鈥� to be things that are low priced or not bought regularly so consumers might not notice price increases.
Recently, I bought two such items. First was a small fruit pie at the world鈥檚 largest retailer. For years, they have been two for $1. Now they are 74 cents each. This is a price increase of 48%. The second item was driveway sealer. Most people put this on their black top every couple of years. Last year I paid $16 for a bucket, this year it was $22. This is an increase of 37%.
We have discussed in the past, the importance of a written financial plan. One of the necessary components of such a plan are adjustments to income to keep up with inflation. Often 3% is used, which is more normal than what is happening today. Inflation is the loss of purchasing power. It can cripple a budget over time.
To get a longer-term perspective on inflation, let鈥檚 consider prices in 1962. That is when people who are turning 60 this year were born. The average house cost $19,090 then. I recently saw that today the average is closer to $400,000. Some areas of the country are much more expensive than our area, which increases this total. The average new car in 1962 was $2,886. It is amazing the number of pickup trucks we see today that cost $70,000. While we are facing $5 per gallon of gas now, then it was only 32 cents a gallon.
Sixty years ago, a loaf of bread cost 19 cents and a gallon of milk was 38 cents. Candy bars and chewing gum were a nickel. Today, it is hard to find a candy bar for under $1. A six pack of your favorite beer averaged 99 cents. That would be nice on these hot days.
In 1962, discount stores were just starting to spring up. The first Kmart opened that year. This year, the last one will probably close. At one time they were the biggest retailer in the country. Remember, hot new companies do not last forever. Keep that in mind when making investments.
The one thing we would not want from 1962 is median household income. It was $6,000. Adjusted for inflation, that would have been $25,726.26 in 2020.
This helps to put a perspective on prices. Remember, Social Security is one of the few retirement assets that have a cost-of-living adjustment to help keep up with inflation. That is one of the important reasons to try and maximize that income source.
I hope you and your family have a safe and happy 4th of July.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.