Simple Truths About Money

9. Inflation and taxes are money's enemies. Saving and investing are money's friends.

Do you keep a lot of money in bank checking and savings accounts? Do you know if you are earning any interest on this money? Many people think money in bank accounts is safe money, but what they don't realize is that inflation will erode the value of that money over time. Inflation is defined as the process by which prices of goods and services increase over time and erode purchasing power. Historically, inflation has averaged 3% per year, with inflation at 3%, $1,000 today will buy $410 worth of goods or services 10 years from now.

Taxes can eat away at your earned and investment income. There is no way to avoid taxes, but you can employ strategies and make financial decisions to help minimize them. For example, savings in tax-deferred retirement accounts, utilizing Roth IRAs, effectively managing mortgage debt, and choosing the right asset allocation for your taxable and retirement accounts can effectively lower your tax bill each year. With combined Federal and State (CA) taxes topping out at 44.3%, it pays to take advantage of as many of these tax-saving strategies as you can.

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