Who's the rascal that taught us about money? Part 2

Inflation is the number one killer of financial health. Each year, economists will argue that inflation has risen by 2-3%. If your money isn't growing at that rate, then your savings is falling behind. Savings in a bank account will be rewarded with about 0.5%.

Here are a couple of examples of inflation at work:

1. When I entered the workforce in 1995, a good starting salary was $25,000/year. Today's graduating students are making in the range of $40,000/year. If you take inflationary pressures of 3% annually from 1995, the number is a bit more than the $40,000 starting salaries for today's newest graduates.

2. I bought a house in 2004 and sold it 9 years later for $58,000 more than I paid for it. If I account for 3% annual inflation, I lost money on the house.

I had money in my pocket from the sale of the house. When most people sell a house, they have to buy another one. If the market has gone up, then the purchase price of the next home will also have gone up. There is no new savings, just new debt. That's right new, bigger and longer debt!!!

The people of my generation and younger do not know what it's like to carry 19% interest payments on their debt. It was our parents/grandparents who had to face that monster. Some of us have learned to use debt to our advantage. And some of us are getting eaten by it, even in these times of cheap debt. In either case, we have all become a society of gluttons.

We eat too much. We drink too much. We spend too much. And we rationalize it by saying that we deserve it.

We depend more and more on the banks everyday. I've seen people with good jobs and no kids lose their homes. I've watched intelligent people make extreme errors in judgement with consumer debt. We have given control of our lives to the financial institutions that carry our debt.

I'm afraid of where this is all going. I'm afraid that many will be homeless, penniless and desperate. I'm hoping that more realize that overspending beyond the means cannot continue. I wish everyone will take the time to put their financial well being back on track. I'm praying that everyone realizes that the only way we will survive the coming economic storm is to prepare now by putting our horses in the barn. We need to help our neighbours do the same.

If you think you're safe, do some research on what's going on in Detroit, Michigan. The city's economic condition has become critical. Some think it's the first sore of a major sickness that is about to brood throughout North America.

Don't think it could happen here? It wasn't supposed to happen in Detroit either.

We're in serious financial trouble, as individuals and as a society.