In this episode, Erik shares what inflation is and what it means to you.
Erik J. Olson: (00:01)
What the hell is going on with inflation? What is happening? This is Erik J. Olson. So inflation. If you’re not familiar with inflation, let me just briefly explain what it is. So with inflation, what happens is basically the prices of everything rises over time. That’s how most people think of it. It just gets more expensive, right? The cost of gas goes up. The cost of food goes up. The cost of housing goes up. But what a lot of people don’t realize is that it’s not even so much that the cost of that thing goes up as much as the buying power of your dollar goes down. So if you like, let’s just take, there you go. I got right here, a $20 bill, right? So I’m just gonna do an example right now. Here’s a $20 bill that I just pulled out. Let’s say that a $20 bill bought this notebook last year in 2021.
Erik J. Olson: (01:00)
Right. They bought this notebook, which is probably about right. This is probably about a $20 notebook right here. Right? It’s uh, I don’t know, six by nine notebook. It’s got about 300 pages in. I write it every single day. I love it definitely worth 20 bucks in 2021. I could take this $20 and I could buy this notebook. It’s an even exchange right in 2021. Well, in 2022, this $20, this $20 is not enough, right? Because the value of this went down. This won’t buy you a notebook anymore. This only buy you like 90% of this notebook, which means that in order to buy this notebook, I’m gonna give this $20 bill over, but that’s not enough, right? Cause it just doesn’t exchange for the same value anymore. I need to throw more of these dollars in. So it’ll cost 22 bucks instead of 20 bucks.
Erik J. Olson: (01:53)
That’s inflation right now. What we, what is perceived as, and the way that it’s communicated in society is that the price of this notebook inflated up, that’s really not what’s happening. What really happens is the price of this dollar, this $20 bill deflated. And it requires more of them. Now, why am I even talking about that? Because like, this is a lot of business, uh, discussions here. I also talk about digital marketing a lot, but what’s happening is the, the value of your currency, this Fiat cash right here. And I’m like, like this, this, okay, let’s go back to the example. This notebook is always worth a notebook to me, right? This $20 bill right here is worth some variable amount based on all sorts of factors that are out of our control, right? You’ve got the government printing more and more and more of these $20 bills, $10 bills cash, right? So if, if you have twice as many dollar bills or 10 times, many dollar bills
Speaker 2: (02:58)
Out there, one of them won’t buy the same amount as, as it used to. Does that make sense? Right? Because each one’s worth less. That’s what’s going on here. So the problem with inflation is not even so much that things cost more is that you’re buying power decreases. All right. How does this tie into business? So here at Array Digital, we have a bank account. We have a money market account where we have some liquid cash that just sits there in the bank account. Right. And we save it for emergencies, or if there’s an opportunity that we can take advantage of. Now, I’m just gonna use round numbers just for the sake of a discussion. Let’s say it’s $10,000 that we put in there two years ago. Right? So two years ago we’re like, oh, here’s $10,000. We could do something awesome with it. Well, a year later, it’s only, you can only buy about, I don’t know, $9,800 worth the stuff, but more recently going from, you know, the next year the inflation’s gone up so much.
Speaker 2: (03:53)
It’s that 8.3% right now, as of the end of April 20, 22 8. So that, that $10,000 will only buy you now maybe like $9,000 worth of product every year, that goes by the buying power of that $10,000 just drops. So it’s still $10,000, but I can’t buy what I used to be able to buy with it because of inflation. Right? So the reason I’m telling you this cuz right now, like last year, last year, and I’m looking at, uh, US inflation calculator.com last year in 2021, the annual inflation. And it was 7%. That means you’re buying power dropped by 7%. This year in 2022. So far is 8.3%. So that means, all right, let me, that means it dropped by 7% and then it dropped another 8.3%, right? That’s a significant drop when you combine those two together. So your buying power is dropping year after year after year.
Speaker 2: (04:54)
Why do I tell you this on journey to a hundred million dollars? Because if you’ve got money sitting in the bank, like we do it is literally rotting away, cuz it just decreases in buying power year after year after year. And it compounds. If you leave it in there for 10 years, it won’t be worth nothing, right? So you have to put this money to work. And this is something that Kevin and I talk about quite often and we struggle with how we’re gonna put this extra money to work on the one hand there’s security in having that liquid cash in case something happens, there’s an emergency or there’s a, a great opportunity, an amazing thing that we can buy like a company or something, a product. Uh, but we need to cash now. Okay. We got that. Right. But on the other hand that money’s just sitting around literally rotting on the vine. Like we have to put it to work. So this is what Kevin and I talk about a lot. How are we gonna put that money to work? Is it, are we gonna buy a company? Are we gonna start another company? If we start another company, what kind of company is it? But we gotta do something with it. Cause it earns
Speaker 3: (05:57)
0.1 to .2% in the bank, even a money market account. It earns basically nothing yet. It decreases in value by seven to 8%, every single year. It’s a terrible investment. Like can you imagine if a stock book is like, Hey, why don’t you give me your money? And I’ll decrease it by seven or 8% every year. You’d be like, huh? I don’t think so, dude. But when you leave money in a bank it’s decreasing by seven or 8%, you need to convert those us dollars to something that will produce a company real estate, something that has value that increases over time, not keep it as cash. And when it’s in the bank, it’s cash and it decreases because you don’t do anything with it. You have to put money to work. So that’s why I’m gonna ramp today about inflation. What it’s all about, what it means to you. But, but here’s like the summary. You gotta put your money to work, figure out how to get it, to work for you. Not the other way around.