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Understanding Inflation and How to Protect Your Money

What Causes Inflation?

Inflation occurs when the overall cost of goods and services increases. This isn’t just about the price of gas going up; it’s about a broad rise in costs for things like housing, clothing, and food. If you’re noticing higher prices across the board, inflation might be the reason.

Three main factors can drive inflation:

• Demand for goods and services exceeds supply, leading to higher prices.
• The cost of producing goods and services increases, with these costs passed on to consumers.
• An abundance of money in the economy, which can increase demand and production costs.

Economists often summarize inflation as “too much money chasing too few goods.”

How Inflation Affects Your Money

Inflation reduces the purchasing power of your dollar, meaning you pay more for goods and services than before. For example, the price of a gallon of milk might rise by 30 cents in a year, or gas prices might increase by $1 per gallon.

Inflation can also negatively impact savings. The value of money in savings accounts decreases when inflation is high, even if interest rates rise. This can also affect fixed-income investments like bonds and certificates of deposit (CDs).

Who Benefits From Inflation?

While inflation can hurt consumers, it can benefit some people:

• Borrowers with existing loans may find their debt burden decreases as inflation rises.
• Investors in the stock market and real estate may see positive effects, as stock prices and property values often increase with inflation.
• Businesses might benefit from increased demand, although higher costs for materials and labor can erode profits.

How to Protect Your Money From Inflation

While you can’t completely shield your money from inflation, you can take steps to mitigate its impact:

• Diversify your investment portfolio, perhaps by increasing your stock holdings and reducing bonds.
• Create and stick to a budget to better manage everyday expenses and lower your cost of living.

The Bottom Line

Whether the economy is experiencing inflation or deflation, it’s always a good time to ensure your credit is in top shape. You can do this by obtaining your free credit score and report from Experian.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey with confidence.

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