Today we will talk about the two most common economic concepts and understand what our goal for all investment behavior should be.

What is inflation?
To understand what inflation is, we can first look at the meaning of the word: currency is a common currency, that is, money, inflation is a money expansion – in other words, money is less and less worth, the same money can There are fewer and fewer things to buy.
A well-known example of a world war: In the early 1920s, Germany’s people’s livelihood needs had doubled every 49 hours. By 1923, the highest denomination in Germany was “one hundred trillion marks.” At that time, inflation was serious enough to buy a loaf of bread for RM80 billion.

Inflation occurs anywhere, anytime. Do you still remember the food stalls that you like to eat at the alley? Now think of it, is the price at that time not surprisingly low? Recall that inflation has actually occurred anywhere at any time since childhood.

If we digitize the concept of inflation, we can easily compare how much more expensive things are. So economists define a figure called the inflation rate. If you want to know how much things are going up in the end, you have to look at the inflation rate.

As with return on investment, we need to look at the total rate of return, and we should also understand how much the average annual rate of return makes it easier to compare different investment vehicles. In terms of inflation, after knowing the total inflation rate, we can simply calculate how much the average annual inflation rate is. The annual inflation rate allows us to compare the magnitude of commodity price increases vertically.
What is CPI?
In order to be able to reflect the price level of each period in a concrete and simple manner, economists have defined a figure “Consumer Price Index”, which is simply written as CPI.
The CPI is a comprehensive statistics of the prices of thousands of commodities. The calculation behind this index is very complicated. Therefore, we only need to know its meaning. When the annual CPI can let people know the price of that year and the ratio before, how much increased.

Since CPIs are meaningful only if they are compared to each other, there must be a benchmark. For example, setting the price of 2016 as the benchmark 100. In 1991, the CPI was 72.2. So, in brief, an item of RMB 100 in 2016 could be purchased for only RMB 72.2 in 1991. This is the specific meaning of CPI.

How to use CPI to calculate inflation rate?
Since the CPI can be said to represent the price of all commodities, the year’s annual inflation rate is calculated from the CPI of this year and last year. Using this year’s CPI minus the annual CPI, divided by last year’s CPI, you get inflation this year.
Now, we already know what CPI and inflation are, but more importantly, we must know that inflation is actually a kind of reverse “compound interest” because it is a power increase rather than a simple increase, if not To manage our money, in this era of “everything goes up, but wages don’t go up”, inflation will eat the value of cash in hand, just like a monster. This is also why we must learn to invest in finance and help us put our wealth in armor and weapons against inflation and financial freedom.

What is “passive income”?
Financial freedom means not having to work hard for money for living expenses. This is what most of us are most eager to achieve. If we enter this state, we can call it “retirement.” The established thinking of ordinary people is that they have white hair and shameless people. However, if you understand non-wage income and thus achieve financial freedom, you can enjoy retirement life in advance if you have a good financial plan. .
The goal of many people’s financial management is to obtain stable income through investment, and hope that one day they will be able to achieve financial freedom.

Before understanding financial freedom, it is necessary to understand what passive income is. Passive income is also called “non-wage income” or “sustained income.” In short, if nothing is done this month, but by the end of the month, you get a sum of money, which is “passive income”. For example, major shareholders receive stock interest, landlords collect rent, and so on.
What does passive income mean to us? It’s very simple, because there are children in the family, the car has to be refueled, and parents have to be filial. Everyone has many necessary expenses in their lives. Therefore, we must work hard to pay for these expenses with the money we earn at work. However, if we can continue to increase our passive income, until one day, “passive income” is greater than “living expenses”, it means that even without the right job, but also to maintain daily life.

Under such circumstances, we can still choose to go to work or do business. The income earned at this time does not have to be used to support living expenses, can be used as a cost for other luxury goods, or can be reinvested to improve the quality of life. .
Financial freedom is a guarantee and a value. Most people will pursue a stable life. When a person experiences an accident and cannot rely on work to maintain his life, having a passive income can reduce the impact of accidents. The livelihood of family members is annoying and they use passive income to support their future lives and make life more stable. The real purpose of financial freedom is not to encourage non-work but to change the meaning of the work. After detaching from the troubles of maintaining life, the meaning of the work can be to improve society, create value, and achieve self.

Therefore, we can say that the purpose of financial management is to “passive income”. The purpose of passive income is to achieve financial freedom, and financial freedom is to grasp the right to serve and live a rich life.