INFLATION

THE EFFECT OF INFLATION AND TAXES ON YOUR SAVINGS ACCOUNT

 

Warren Buffett Quote: “ Our outlook for inflation is always the same. We feel there’s a big bias toward inflation-both in the U.S. and around the world…It’s a world where prices are going up and up. It’s just a question of how much. You could definitely have some explosive inflation at some point. Printing money is just too easy. I’d do it myself if I could get away with it.” Annual meeting in 1988. 

 

   
Your Savings  $100,000
Rate of rerturn  6%
Earnings  $6,000

*** We have used a 6% rate of return. Most savings accounts today pay 1% to 2%.

 


Multiply your earnings by your tax rate to determine tax owed:

   
Earnings  $6,000
Tax Rate  x 28%
Taxes owed  $1,680

 

INFLATION- determine your loss in purchasing power by multiplying Savings by the assumed inflation rate

   
Your Savings  $100,000
Inflation Rate  x3%
Loss in pruchasing Power  $3,000

 

Determine your actual rate of return by subtracting the taxes owed and loss in purchasing power from your earnings:


 

Earnings   $6,000
Less taxes  $1,680
Loss in Purchasing Power  $3,000

Actual Return on

savings

 $1,320

 

Determine the percentage of return on your savings account by dividing the actual return by your savings:

$1,320.00 / $100,000 = 1.3%

 

 

To understand the financial benefits of real estate ownership it is necessary is to understand inflation. Please log on to the

 

 U.S. Inflation Calculator

 

and experiment with their inflation calculator.

       

 

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Fascinating Facts:

 

A 100 watt light bulb will burn 90 lbs of coal over it's 750 hour lifetime.

 

An average home burns 10,000 lbs of caol each year.

 

Steve Nauert 

Ca. Real Estate Broker
License 00622276

310-493-1999