“I don’t want any vegetables, thank you. I paid for the cow to eat them for me.”
I don’t eat them often, but, goodness, I enjoy grilling burgers. I’ll give you an incentive to read the rest of this article. At the end, I’ll give you my kick-(censored) hamburger recipe. I know. I’m about to go all Dunning-Kruger on you here, but my burgers are incredible. Read this article, fire up the grill, and thank me later.
Did I whet your appetite?
When I make burgers, I prefer grass-fed free-range beef as lean as possible. It’s as close to a sacred cow as I can get.
And with that terrible segue, let’s look at some of the sacred cows of personal finance and demystify the myths that you might have read about and come to accept as gospel truth.
Sacred Cow #1: Inflation is BAD!
First off, to understand this myth, we need to define inflation. It’s the underlying cause of constant price increases for goods and services. Cokes used to cost a nickel. A gallon of gas went for the change you kept in the ashtray in your car. A strip of bacon went for a dime. You get the picture. It’s also a result of a fiat currency; since the government can print currency when it wants, there’s more money in the system than there was before. More money chasing a finite set of things to buy means that prices invariably go up.
A little bit of inflation, though, is actually good for you and for the economy at large. If you’re selling products or services and can raise your prices a little, then that’s more money which you can spend. If you spend more money, others get more money, and the cycle goes on. That cycle is known as the money multiplier and how quickly it gets cycled through everyone’s pockets is known as the velocity of money. Wages go up in an inflationary environment and when people have more money, they spend more, and all is right with the television pundits.
Another good aspect of inflation is that, if you have debt (which, hopefully, you don’t), the effective cost of that debt goes down. The reason is that your wages should rise in line with inflation (if they don’t, maybe it’s time to consider a new job or to start a side gig), so you have more money. The debt remains constant, so, over time, in an inflationary environment, the percentage of your income that you’re using to pay off that debt decreases.
Does this mean you should go out and borrow a bunch of money because Helicopter Ben has forgotten to turn off the spigot on quantitative easing? NO!
Just like the Goldilocks story, inflation needs to be just right. Too little inflation (or deflation), and consumer spending ceases (except for those who have a lot of assets, and they jump for glee at being able to buy everything on sale). Too much inflation, and stuff becomes too expensive to buy before you get a chance to get to the store. Hello, Zimbabwe.