Purchasing power refers to the amount of goods and services an individual or household can afford to buy with their income, taking into account prices and the cost of living.
If making financial decisions in life were a video game, then you might have ‘real-time’ access to your purchasing power every time you faced a spending choice. For example, can I afford to buy this new car, and how should I pay for it? How will my decisions impact my ability to make other purchases, like affording a house?
The reality is that you don’t need access to a real-time indicator, but understanding your purchasing power can help you make informed decisions that put you in the driver’s seat without compromising your financial well-being.
Purchasing power is a vital personal finance metric because it provides a realistic view of the value of your money over time, especially in the face of inflation. By understanding and monitoring your purchasing power, you can make more informed decisions about budgeting, saving, investing, and long-term financial planning to protect and grow your real wealth.
If you are interested in learning more about purchasing power and how to calculate it, then please read on.
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