It’s not just you. The cost of living has actually increased.
What could $50,000 buy you ten years ago? What about today?
You probably earned less back then, and still, that money seemed to have more “value” than it has today.
Our income generally increases along with the cost of living. But it no longer looks proportional.
How did life become so expensive? Should we just blame inflation? Or is there more to it?
- Why Is Everything So Expensive?
- What Can You Do About It?
- How to Make Your Life Less Expensive (Without Being Frugal)
- The Bottom Line
Why Is Everything So Expensive?
If you stored $100K and didn’t touch it for ten years, after that time, it would be worth less than $100K. The only way to maintain that money is to invest it somewhere.
Otherwise, you could wake up one day and find most of your net worth gone. And the more you save, the more you lose.
And once you understand why everything is so expensive, you’ll be able to spend less and do more with your money.
#1 You live in a capitalist economy
A capitalist world motivates business owners to make more profits. And how much they earn depends on supply and demand.
This means: What you pay is almost never what it’s worth.
For example, a seller can raise prices because a product is selling well. Or because nobody else does. So they change prices without making the product more valuable.
They don’t charge what it’s worth. They charge the most you’re willing to pay for it.
The moment buyers have more money, they are more likely to buy, and so drive prices up.
Or do they?
What if you see the price increases but your income hasn’t really changed?
Maybe these businesses are getting higher demand from fewer, high-net-worth clients.
A business sells a $10 product to 100 people.
a. If there are more buyers than products, the seller may raise the price to $20. Fewer people will be able to afford it
b. If most people can afford to pay more than $10, the seller will raise the price. But the minority who won’t be able to buy it
In the worst-case scenario, the seller earns just as much as before. At best, they increase their ROI.
We get that all businesses need profits to exist (like 30% and above). But if you think something is overpriced, you could probably find someone else selling for lower.
#2 Some places have more demand than others
When it comes to online businesses, there’s no limit to how many buyers you can have. If you sell virtual products in different marketplaces and accept all payment methods, ANYBODY can buy them.
Similarly, almost anybody can start an online business. So the competition gives you more pricing options.
When companies sell services or physical products, they focus on a city area, state, or country. So if you move away from those areas, you may find other brands with different prices for almost the same product.
Has everything really become expensive? If you live in a popular city, that’s no surprise. Travel a bit, and you’ll find a different story.
#3 Currencies keep devaluing
Many complex reasons make your currency worth less money.
If you compare currency trades, it’s an inverse proportion. The rise of one currency makes the other look less valuable.
Let’s say the relation between Currency A and Currency B is 1. If Currency A falls by 50%, how much would it be to convert it to Currency B? You have to double that 50% to get 100%.
So your currency devalues when “losing” against others.
And it’s not the only way to lose value. The second part is inflation, which is a consequence of the increased money supply.
When you can’t afford to pay for your things, printing money sounds like a good solution. When applied on a large scale, however, it leads to complex economic problems. The solution? Every dollar bill printed should have less value than the previous one.
Money printing helps to manage cash flow in a business. It also allows banks to lend more and thus increase profits.
How does this help you, when the money passes through banks and companies first? If you get paid last, this leads to price increases without higher income.
#4 Taxes keep increasing
Provided that you can fix inflation, you still have another “money drain:” taxes. And these will continue to increase as you make more money.
Even if you stay at the same level, taxes will increase over time. When was the last time you heard about tax decreases?
People pay what they’re willing to pay, not what’s necessarily essential.
Of course, it’s not all about saving and making money. You want to pay taxes for the promise of a better society. Whether you’re paying too much or too little depends on your awareness.
It’s illegal to evade the taxes you owe. But it’s okay (even advisable) to avoid taxes.
Chances are you’re paying more than you should, which is why it’s useful to learn about your tax situation. And if that’s too complex, you can hire an expert to help you with tax avoidance.
#5 Companies want you to spend forever
While governments demand more money from you, businesses do something similar. They invent tactics to make you spend more money and more often.
There’s nothing wrong with that as long as:
- The business offers real value
- The offer is fairly close to the intrinsic value
If you buy a product you don’t need or has little value, that’s a consumer trap. For example, brands may urge you to “invest” in the new smartphone that changes the game. But if you bought one last year already, buying again could be a waste.
The Innovation Fallacy
Could this be possible?
Imagine a company has a product on the market, but this year, they’ve developed one that’s five times more efficient. Will they launch this new product and revolutionize the industry?
Most likely, they’ll create sub-products to increase profitability.
Year 1 = Product 2x better than the original
Year 2 = 3x better
Year 3 = 4x better
Year 4 = They release the product they invented a long time ago, 5x efficiency
If they invent a product with ten great features, they may create ten products, each one with one more feature than the other. And they release them in that order once a year.
Unfortunately, most buyers can’t know this. Businesses may never tell you what they’re developing or what their profit margins are.
Businesses make the most money from recurrent customers. That’s why it’s profitable to create subscription-based models (Netflix) or sell consumables (e.g., printer ink).
What’s the trap of subscriptions? When you stop paying, you lose your privileges.
And consumables? These are mandatory accessories. Without them, your main product is unusable.
On the printer example, it may seem cheap to buy this machine. But then, they can overprice the cartridges, which you’ll need to buy for years.
Programmed obsolescence means that sellers limit the product’s durability to make you buy again. It’s not different from renting, except that nobody tells you.
What’s shocking is how some companies do this with all products.
Let’s say you have an old machine you want to repair. If the company released new models, it’s smart to buy those new parts for your machine. The problem is, your version isn’t compatible.
Although it’s possible to repair it, it’s a hassle. It may cost so much money and time that it’s easier to buy a new model.
What if this Programmation didn’t exist? Products would last WAY longer. You don’t need much technological advancement.
Look at this light bulb. It’s been working since 1902.
What Can You Do About It?
How do you live in an expensive world? It’s easy to advise you to make more money. But that won’t make things less expensive.
When your income and expenses increase at the same proportion, we say that the economy has scaled. If this didn’t happen, the economy would get slower, which doesn’t benefit anybody.
So if prices have increased, you can be sure that there must be more income opportunities. It means someone else is making more money somewhere. And so you can.
#1 Technology has become cheaper
Most of the money we make today comes from computers and phones. And let’s not get into the countless things you can do with these devices.
You may think that makes them super-valuable, and that’s why they priced so much at the beginning. It happens as well with appliances and any electronics.
It’s easy to profit in this business when you offer the highest technology. The thing is, new features come up every day. Every few years, the latest devices can double the efficiency of the previous ones.
If something is 2x, 3x better, do you think they will price it 2x, 3x higher? No, unless they’re launching a high-end electronic. It doesn’t cost them two/three times more to produce it.
Instead, the previous models devalue. If the original cost $100, the new could be %5
Think about it. Technology upgrades fast and doesn’t seem to stop. Do you really need the latest technology? Find the model you need, and if it’s too expensive, you can save hundreds of dollars by waiting a bit.
#2 Unlimited leverage potential
With the power of the Internet, you can reach people from anywhere in the world, all at once. Instead of trading your limited time for money, you’re using unlimited leverage.
Here are some examples of leverage in action:
- You publish a Youtube video that thousands of people will see. People will keep watching it long after you created it. And every video you create is like a clone of yourself sharing your message
- You’re selling a product many people would want to buy. If you have 1% conversions and boost it to 2%, you just doubled your revenue (without doubling your work hours)
- Once people visit your channel, blog, or website, you become more visible online. So you’re more likely to keep getting traffic. It becomes effortless
- You want to invest money and design a safe strategy. You could generate passive income and live off interest created by your initial amount
- You buy a house for $100k with a mortgage and a $20k down payment. You clean it up and paint it. Three weeks later, you sell it for $125k. You’ve just used the bank’s money to leverage a $100k asset for the cost of a $20k down-payment. This nets you nearly a 100% profit, after costs
Back then, it cost thousands of dollars to start a business. With today’s make-money-online, you can start for free selling a service. You can reach thousands of people for a few dollars. It wasn’t that easy fifteen years ago.
Stocks may have been around for a while. And whether you’re an employee or entrepreneur, you may need to invest to keep your money safe. It doesn’t need to be stocks, and it doesn’t need to be risky if you pick the right strategy.
Many agree that today’s investment opportunities are bigger than before. Why not take advantage of it?
#3 Countless currencies to choose
When we say there are many currencies to choose from, that’s another way to talk about investing. If you think the dollar will fall, you could keep some of your savings in another fiat (EUR, GBP, JPY…) and protect it.
Remember that prices may depend on national economies. What’s expensive here may not be expensive in other countries. And by buying other currencies, you’re maintaining, if not increasing, your savings.
If you’d like to make money this way, the crypto markets show the most promise. Every day, some coins grow up to ten times. Just like there are coins that plummet overnight.
These markets are full of thousands of projects, most of which may have no long-term value. While some currencies do have a brilliant future, it depends on your research and patience to find them.
If you don’t like the crypto-hype and prefer to play it safe, that’s okay. A good place to start is to look at the most stable currencies historically: the Swiss Franc, the Japanese Yen, the Norwegian Krone, among others.
As for cryptocurrencies, the “stable” ones include Tether (USDT), Dai (DAI), and Paxos (PAX).
How to Make Your Life Less Expensive (Without Being Frugal)
Just because things become more expensive, it doesn’t mean it’s the only way to pay for them. And it doesn’t mean it will always be.
With the following tricks, you can save money without being frugal.
#1 Take advantage of pricing differences
If there’s a lot of demand, prices go up. And this only means you pay more when a single company controls the market. When it comes to local and online stores, it’s not.
Even big corporations sell the same products for different prices. The point is: if there is demand, that will attract competition, which may bring prices down.
Or at least, it means you’ll find someone who offers you the most realistic price.
- Compare with as many sellers as possible
- Buy based on the yearly price pattern of products
- Switch locations for different prices
#2 Become a smarter consumer
Smart consumers don’t pay more than they have to. And although it sounds obvious, it’s too easy to get it wrong.
Look, companies have spent millions on marketing to make sure you buy, even when you don’t need it. That means: if you don’t have a plan, you will waste money by default.
The best tip, of course, is not to buy anything you won’t need. But there’s more into it:
- Before you visit a store, make a list of things to buy and don’t look at anything else
- Don’t go to malls or supermarkets while hungry
- If you’re not getting the value, refund the product if possible
- Negotiate your cable bill, your car, house, and other big purchases
- By high quantity to lower prices
- If you visit the least visited locations, prices may be lower
And the most important rule: never stop “spending” those dollars that make you more money.
#2 Invest with a long-term mentality
If you never invested before, it may first look like a risky, unrealistic way to make money. On today’s standards, it has actually become the new bank account, since you can’t protect your money without investing.
Banks pay you very little for the money you trust them. Oftentimes, they charge you for the account every year.
Even with compound interest, you lose money due to inflation and fees. If you apply that interest on an investment, however, you can grow your account.
So what does it mean to invest long term?
It means that you base decisions years on the future. It means you may “lose” money tomorrow, but in the end, you’ll make a positive return 95%+ of the time.
And to hedge your investments, you can diversify with index funds or buy options.
There’s certainly some benefit in studying the market like a trader. But if you don’t want to worry about your assets every day, the best strategy is to stay in the market.
How much to invest exactly? At least 10% of the money you don’t use after you account for living expenses, cash flow, taxes, savings accounts, and emergency funds.
#3 Find the right place to live
Do you dream of living in a world where things are cheaper? It’s not utopian. You can find similar places to where you live where prices are different. If you have the ability, then why not move?
If you have a family or a job, it may feel risky. That’s where you need to make a decision. If a city makes your life 10% cheaper, imagine how much you’ll save over the decades.
If you’re too attached to your city, it’s okay as long as you commit to earn more and buy smarter.
You don’t need to travel far to find low-price low-tax cities, although the farther you travel, the more chance you’ll see. Here are some cheap places to live in with good quality standards.
The Bottom Line
Would this even be a problem if you earned more?
While things may cost more, most things have instead scaled. So provided your income scales as well, they cost the same.
The good part of scalability is cash flow. It’s easier to distribute and earn money.
The bad part? The expenses.
Let’s say you pay $2000 a month and you lose your job, your main source of income. In a scaled economy, you use up money much faster. And now you need to come up with $2,000 every month.
By contrast, you could live in a country with a low cost of living. Suppose that you earn the same as in case 1 (whatever it is), but you pay $500 a month for the same stuff. You’re gonna save money faster, and if you do lose your streams, you have lots of time to recover. It’s easier to break even.
That’s why you should lower your expenses whenever you can. When your expenses go up, it might help to make more money. But the risks are higher if you lose it all.
The first step is to optimize your expenses. You then look for ways to increase your income while investing what you save.