Given the current economy in the United States, particularly in South Dakota, we are likely to see a rise in inflation, the general rise of the price level of the economy, in the next five to ten years. Essentially, that means that one dollar today is not going to be worth as much in five to ten years, because the prices of anything you buy (a house, a business, or a gallon of gas) will continue to rise. The main question this leads to for each individual or business is, what should I do to protect myself from inflation? Here are a few ideas:
- Raise Your Prices. Each business is going to have to raise their prices in order to make sure that their income remains the same, because their expenses are continuing to rise because of inflation. This is particularly true with regard to the costs of raw materials, as we have seen in the construction business during the spring of 2021. Prices for lumber have gone up around thirty percent (30%) since December of 2020, and while this inflation may recede at some point in the future, an increase in prices must be put in place to make sure the business is still profitable.
- Buying Assets that Increase in Value. One of the best ways to ensure that your income and assets retains and increases in value during a period of inflation is to invest in certain assets, like valuable metals or real estate, that almost always rise in value over time. Real estate is a perfect example of this; for example, if you purchased a house in the United States in 2012 for $161,000 (which was the median home value in the United States at the time), it would now be valued at $263,351, which is an increase of sixty-three and one-half percent (63.5%). This is particularly true in the mid-sized cities in the Midwest; as an example, housing prices in South Dakota have risen nine and one-half percent (9.5%) over just the past twelve (12) months.
- Limit Expenses When Possible. Given the rise in prices in the United States because of inflation, it is always a good idea to focus on limiting one’s expenses as much as possible. Focusing on business efficiency and utilizing technology are two ways to limit expenses and allow for more potential income even during a period of rising inflation.
- Be Aware of Interest Rates. One of the main ways that inflation is controlled is through the raising of interest rates on loans. Currently, interest rates for home mortgages are generally below three percent (3%) in South Dakota, and sometimes even below two percent (2%). It is highly likely that these rates will begin to rise in the next twelve months, so to the extent possible it is best to take out any loans you can utilize as soon as possible. Doing so will certainly help you limit your expenses.
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