Yes, yes, yes... the current problem is inflation but I know that you are dealing with that threat as it pertains to yourself and to your family welfare [see photo]. The decisions you are making right now are probably based on inflation. But... What will you do if inflation peaks in 2023 and begins to fade thereafter?
Inflation can be squeezed out of the global economy rather quickly if the central banks raise interest rates to something more like historic levels [5-7%]. If quantitative tightening is used as the hammer to squash inflation then deflation is the new challenge. Asset prices will fall. The challenges of such a sudden fall in asset prices will hit you across all aspects of your life.
Deflation is directly linked to your borrowings. How vulnerable are you when the assets that you used to anchor your loans start to deflate in value. The biggest problem is that new borrowings [even when inflation/interest rates decline] is not the answer. The underlying asset is devalued and the thus the borrowings that you have piled on that base quickly become more and more burdensome. In the short-term inflation can be coped with by most people [with help from their familial/friends] but long-term deflation is much more complex.
Inflation is a problem for your "emotional wants" but deflation is an issue for your "basic needs". You can adjust your "emotional wants" in ways that effective lower the impact of price inflation on your life. But it will take much more thought [and purpose] if you are to adequately prepare for the impact of deflation on your lives.
How can you prepare for deflation? First decide where you are going to live for the next 10 years. Second decide what amount of cash flow you must generate to meet your basic needs over the next 10 years. Third decide if you are prepared to borrow to help to pay for the assets you must have to meet your basic needs. Fourth decide if you can produce the surplus [excess cash flow] required to meet the cost of your emotional wants.
Richard.
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