You Live on Buying Power, Not Dollars

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The old way of measuring wealth, the number of dollars in your bank account, is less relevant in a world where there is significant inflation. This is why “buying power” is seen as a better way to measure financial health.

Dollars vs. Buying Power

A dollar is only a unit of currency, which is a constant. What is not constant is the amount of goods and services a dollar can buy. The buying power of dollars is constant eroding due to inflation. For instance, suppose a basket of goods costs $100 today. If the inflation rate is 5%, you will need $128 dollars in five years and $163 dollars in ten years to buy the same basket of goods. However, whether a basket of goods costs $100, $200, or $500 does not matter, as long as have enough dollars to continue buying the same basket of goods. Another way of saying this is that you need constant buying power in order to continue to buy the same basket of goods over time.

This is why I said that you live on buying power, not dollars.

My business is investment real estate so I will explain the necessary characteristics for maintaining your current life sty as long as you live. To do this, you need sufficient rental income that meets three requirements:

• Rents must outpace inflation: If rents do not outpace inflation, no matter how many properties you own, you cannot maintain your lifestyle due to inflation continuously eroding your buying power.
• Income persistence: The income lasts throughout your lifetime.
• Income dependability: The rental income must continue, even in bad economic times.

In Conclusion

Acquiring rental properties that achieve all three requirements necessitates buying in the right city and buying properties that attract the right tenants.