Almost everyone hates taxes, because we have to turn over a portion of our hard earned money to the government every year, which means that most of us spend a portion of every year working for the government, before we begin working for ourselves. While most people hate the taxes they can see, it is the taxes they “can't” see which are the most dangerous, and the most deadly of all these taxes is inflation. Yes, inflation is a tax. If you're like most people, you probably think that inflation means “rising prices.”
Defining inflation in terms of rising prices is akin to confusing the symptom with the disease. Rising prices are a symptom of inflation, not inflation itself. If you've read our book Save Money, Get out of Debt, Build Wealth, then you are probably familiar with this subject, but if not, pay close attention, because what I'm about to tell you is one of the most important lessons you will ever learn when it comes to finance. The fact of the matter is that inflation is defined as a devaluation of the currency, as a result of monetary expansion on the part of the government. In lay men's terms, when the government prints a lot of money, the value of the money falls, and the price of goods and services rise as a result.
This is why the cost of food, energy, and medical care is a lot higher today than it was twenty years ago, because the government, and all the political parties that comprise it, either borrow and spend, or tax and spend, and regardless, this requires the money supply to expand. This is a form of theft, because money is actually being taken out of your wallet, purse, and bank account. Sure, when you look at your bank account, the same amount of money is there, but its value is lower than it was four years ago.
Why is this all so important? This is important because, over the course of your freelance career, if you do not protect the money you're saving up, it will lose its purchasing power over time. If you begin saving your way towards $100,000 today, if it takes you five years to reach that amount, your $100,000 will buy less then than it does now.
The amazing thing about this is that while most people are familiar with the word “inflation,” few actually know what it really means. As a freelancer and soon to be investor, your goal must be to preserve your purchasing power today so you can invest it tomorrow. How do you do this?