Today is the 12th of May, which means that today is the last day of the 19th week of this year. This, in turn, means that we have only 33 weeks left until it’s New Year’s Eve again. Time is short.
I have fulfilled one of my targets for 2019 and took a break in-between jobs for a total of 6 weeks. Frankly, I could use another 2 weeks. I spent 3 weeks in Thailand relaxing in and working a little on our house in the beautiful north-east province of Isaarn. After that, we visited my parents in Poland for a week and spent another 2 weeks together in our main home in Berlin. Those 3 weeks in Europe just passed by like nothing.
It’s funny because every time I visit Europe I feel different about it. Last year I was feeling great and was actually really thinking about moving back to Berlin. The summer was nice and hot, people were smiling and my daughter had the best time with my parents. This year, while it all also felt good, I took another perspective. One thing I noticed was that the city is getting pretty expensive.
Inflation is just part of the deal
When I moved out of my parents’ place at the age of 21, I had a super tight budget and was only able to spend approx. 20 Euros a week. My rent was roughly 400 Euros a month, which was equal to my income from my civil-service job (instead of going to the army I was doing civil service and working in a kindergarten). While working there from 6 AM to 3 PM every day, I took on a 2nd job for 3 hours daily at some local office. It would pay me 6 Euros an hour, and cover my expenses for utilities, telephone and whatever was required to ensure I don’t end up on the street. Additionally, in the evening, I would give Karate-lessons to children once a week in my local dojo which paid me 20 Euros. This was the money that I used to buy food/groceries for me and my girlfriend at that time, as we moved in together. It was tough but do-able.
Today, it’s impossible to find a 70 sqm 2-bedroom roof-apartment anywhere in Berlin for the same price of 400 Euros. Prices have doubled and tripled. It would also be very hard to get through the week on 20 Euros, even if that 20 Euros would be only for myself.
We all know that things change and that prices go up, one way or another. It’s just how it is and part of the game. Going deeper into this topic one might argue that today we receive much better value, despite paying a higher price. Apartments are in better conditions, with central heating systems, clean drinking water from the tap and better-insulated buildings to protect us and reduce heating costs during winter. Computers got actually cheaper while offering a performance that we could only dream of 20 years ago. Food… well this one is probably arguable. I don’t think food got better over the years.
But still, we really need to think about it and what it means for our personal situation.
This all happened in less than 20 years. I am now 39 years old so chances are, that I got at least another 20 years ahead of me. Probably more. It could be another 40 years. Or even 60. Could prices double and triple again?
Well, yes they could. In fact, I am pretty sure they will.
That’s why it is so important that your savings grow at a similar or larger pace. We cannot rely on things remaining similar in pricing in 10, 20 or 30 years from now. What we think will be enough to live on today, may be very different from the reality in the future. That’s why keeping money on a savings account over long periods of time is probably not the right thing to do. This money is losing value day by day.
Investing in stocks that consistently grow dividends, on the other hand, seems like a much smarter way to go. Even if those increases are marginal, like 2 % or 3 % a year, it beats every savings account out there not only by percentage but more importantly by its long-term value.
Obviously, if those increases can go up to 7 % or 10 % or even more, then there is really not much to complain about. And, this is not the case only for some rare-super-stocks. It’s pretty common for many companies out there. Plenty of companies increase their payouts on an even much larger scale, like 15 % or 20 %!
It does also make sense for a few simple reasons. As prices go up, so do revenues and profits. If companies manage on top to improve their margins and grow market shares, the growth becomes exponential. As an investor, you are poised to participate in this process.
This is why investing is such a powerful tool to increase wealth and this is why in my opinion, everyone who plans for FIRE needs to be invested one way or another.