Demystifying Inflation: Its Impact and How to Embrace It.

Inflation.  You've heard this topical word thrown around in news circles.  If anything, you’ve probably used the word to explain why business feels slow and prices seem high.  But, what exactly is it?   Today, we're going to unravel the secrets of inflation, why it decides to grace us with its presence, and how it’s affecting the real estate industry in Los Angeles.  Lastly, we’ll learn how to navigate its quirky ways in your day-to-day life.  Take a seat and relax. Let’s Go!

So, What on Earth is Inflation Anyway?

Before we dive into its impact, let's tackle the basics. Inflation is the reason your favorite coffee shop's latte costs more than it used to and why you hear mortgage rates are increasing.

The Inflation 101: A Quick Primer

• Definition: Inflation is the term we use to describe the rise in the prices of goods and services over time. In simple terms, it's when your dollar doesn't stretch as far as it used to.

• Why the Hike?: Oh, there are reasons. It can happen when there's more demand for stuff than there is stuff to go around (simple supply and demand). It can also be fueled by rising production costs or when central banks get generous with the printing press.  For example, we printed extra money to combat COVID.  And, as of March 2021, COVID costs totaled $5.2 trillion.  To put it in perspective, all of World War II cost $4.7 trillion (in today’s dollars!).  Covid costs are a big part of our current inflation, but there are numerous other reasons.  In fact, the U.S. government has spent $5.50 trillion in fiscal year 2023 to ensure the well-being of the people of the United States.

• Effects:  All in, Inflation erodes your savings, affects the cost of living, and, yes, even impacts the real estate market.  We all deal with it as it’s part of our economy that keeps the wheels turning on our day-to-day lives.  

Now that you know what it is, let's unravel why it decides to make an appearance.

Why Does Inflation Crash Our Financial Party?

Inflation doesn't just show up without reason.  Inflation has been, dare I say, “inflating” behind the scenes for quite some time.  Its arrival can be predicted, but never exactly, so preparation can be tough.   So, why does it occur? 

1. The Demand Dance

Imagine everyone in town wants the latest smartphone, but there are only a limited number available. What happens? Prices skyrocket! When demand for goods and services exceeds what's available, sellers can charge more.  Remember eggs being so expensive?  Here’s why.

2. The Cost-of-Doing-Business

Businesses have bills to pay too, you know. If the costs of materials, labor, and everything else under the sun go up, they often pass those costs onto you, the consumer. So, if you feel things are a little pricier than before…you’re right!  

3. Rising Mortgage Rates

Inflation isn't just about ballooning prices; it also has a say in interest rates.  Central banks may increase overall interest rates to combat inflation, which then trickles down to mortgage rates. They rise as inflation rises.  

• Mortgage rates hit record lows in 2021, but they have risen sharply since then. As of September 2023, mortgage rates nationally and in California were at their highest levels since 2000.

3. Property Investment Challenges

Inflation can throw a curveball in property investment plans.

• Maintenance and Renovation Costs: As the cost of materials and labor rises, so does the cost of maintaining or renovating your properties.

• Rental Income: While you can raise rents to counter inflation, there's a fine line to tread to keep your tenants happy.

• Resale Value: The value of your investment properties might increase, but the profitability may not be as stellar as before.

3. Money Magic

When there's more money floating around, but the same amount of goods and services, prices can rise.  Imagine a bustling town where everyone suddenly has a bit more cash in their pockets, but the local shops and services remain the same.  More money chasing after the same old goods and services can lead to those prices taking an unexpected leap. That's inflation in action, where your dollar just doesn't stretch as far as it used to.

How to Outwit Inflation in Your Daily Life

Inflation might be like an uninvited guest, but you can still be a gracious host. Here are some historical tricks to show inflation the door without losing your cool:

1. Invest Wisely

Investments like stocks, real estate, and bonds can outpace inflation over the long term. Historically, though there are dips in the market, the market continues to go up.  For example, if you bought into the market the day the market was at its all-time lowest during the Great Depression, you’d be up 3000% today!  If you have the funds, investing when the market is low can be seen as getting in at a discount!

2. Embrace the Side Hustle

Having a side gig or freelance work can be your secret weapon against inflation.  It’s how Noble Signings was born!  If interested in Loan Signings, check out this link.  There are so many ways to make money in today’s digital environment.  Start small and try something out!

3. Budget Like a Pro

Budgeting isn't something to ignore. Keep track of your expenses and make every dollar count.  Cook at home and avoid unnecessary costs.  It can be fun to see how little you can spend in a month.  Find ways to enjoy the process!

4. Diversify Your Savings

Don't park all your savings in one place. Spread it around in different types of accounts like savings, certificates of deposit (CDs), and investments. That way, you'll earn a mix of interest rates.

5. Negotiate Smarter

Haggling isn't just for flea markets. Negotiate your rent, insurance rates, or even your cable bill. It's amazing how a little negotiation can save you a bundle.  Check out former hostage negotiator Chris Voss on the art of negotiation.  

6. Stay Educated

Keep an eye on economic news and trends. Take online classes.  Learn new topics.  Knowing what's happening in the financial world can help you make informed decisions.   

Why You Shouldn't Lose Sleep Over Inflation

Alright, let's wrap this up on a positive note because there's no need to toss and turn worrying about inflation. Here's why:

• Inflation Is Normal: Believe it or not, a little inflation is part of a healthy economy. 

• Economists Are on It: Brilliant economic minds are diligently monitoring inflation. Central banks have tools in their toolkit to keep it in check and prevent runaway prices.

• You're Smarter Now: Armed with knowledge, you can tackle inflation with confidence. Use the strategies mentioned to keep your financial ship sailing smoothly.

Remember, history has shown us that economies have weathered periods of high inflation and emerged stronger. While it might seem daunting in the moment, economies and financial systems have a remarkable ability to adapt and recover.

So there you have it!   Stay informed, adapt, and remember that the economy has a knack for bouncing back. And when you're ready to seal the deal on a real estate transaction in Los Angeles, remember that Noble Signings is here to make your paperwork a breeze.

Don't hesitate to reach out to us for all your notary needs in Los Angeles. Your success is our mission, and we're here to make it happen. 

So, keep that chin up, because together, we'll conquer the financial world, one signature at a time! 🖋️