Remember when a slice of pizza was $1 or a cup of coffee was 50 cents? (If that was before your time, bear with us.)
These days, depending on where you live, a slice is about $2 and a cup of ordinary, nondesigner coffee is about $1.25. At least.
That's inflation. We all know it exists. But when we think of it, we tend to reflect on it retrospectively, as in: "God, remember when it was only $4.50 to see a movie!"
When it comes to money, you have to cast your eyes and your wallet forward: What impact will inflation have on your savings in years to come? (To see what today's dollar bought in 1980, click here.)
Assuming inflation increases at the rate of 3 percent per year (historically, the average is about 3.4 percent per year), by 2040 you would need about $4.85 to buy a slice. Yep, five bucks for a scant triangle of tomato sauce, crust, and cheese.
Now imagine similar, inexorable price increases across the board. How much more is your life going to cost in 10, 20, or 30 years?
That's why it's vital to save aggressively and to learn how to invest your money. Ideally, the return on your investments will help your savings grow and protect your cash from inflation.
Because you want to eat more than pizza when you're 65.
Questions about inflation? We had fun comparing past prices to the present here and learning more about inflation here.