Schedule Appointment »
317-912-1000
317-912-1000
In today’s volatile economic landscape, understanding inflation is an essential survival skill for your financial well-being. As prices continue their relentless climb and purchasing power steadily diminishes, millions of Americans find themselves struggling to maintain their standard of living. The grocery bill that once seemed reasonable now strains the budget; the home that was once affordable now sits frustratingly out of reach. But what causes this economic phenomenon we call inflation, and more importantly, how can you protect yourself and even thrive despite its erosive effects?
At its most basic level, inflation is the decrease in purchasing power of a currency over time. When inflation occurs, each unit of currency buys fewer goods and services than it did previously. A dollar today doesn’t stretch as far as it did a year ago, and certainly not as far as it did a decade ago. This reality affects everything from your morning coffee to your retirement savings.
Inflation’s causes are complex and often debated among economists, but they generally fall into two primary categories:
When the supply of certain products or services becomes limited while demand remains strong or increases, prices naturally rise. This is the most straightforward type of inflation and tends to be self-correcting in a functioning free market economy. As prices increase, competitors recognize profit opportunity and are incentivized to produce more of these goods or services, eventually bringing prices back down as supply catches up with demand.
Think about how lumber prices skyrocketed during the pandemic when supply chains were disrupted but demand for home improvement projects surged. Eventually, as supply chains normalized and production increased to meet demand, prices stabilized—though often at a new, higher equilibrium point.
The Federal Reserve attempts to manage this type of inflation through interest rate adjustments. By raising interest rates, the Fed makes borrowing more expensive, which theoretically reduces demand for goods and services by making them less affordable. This monetary policy tool aims to cool an overheating economy and bring inflation back to target levels (typically around 2% annually).
This approach has a big and often overlooked drawback: it doesn’t reduce people’s desire or need for these products or services; it just puts them out of financial reach for many Americans. This creates an economic divide between those who can afford to absorb higher interest rates and those who cannot— functioning as a form of economic gatekeeping that disproportionately impacts middle and lower-income households.
While market dynamics play a role in inflation, recent research from MIT suggests that the most significant driver is federal spending. This research “mathematically” demonstrates that the “overwhelming driver of inflation…is federal spending, not supply” constraints or demand surges.
When the government spends money it hasn’t collected through taxation and can’t reasonably expect to collect, it relies on the Federal Reserve to create more money to cover the deficit. This increase in the money supply without an increase in goods and services leads directly to inflation—a phenomenon economists call “monetary inflation.”
A helpful analogy is to think of it like watering down a drink. Imagine paying for a full-strength beverage but receiving one that’s been diluted with water—you’re still paying the same price, but you’re getting less of what you actually wanted and more of something with no value. Similarly, when more dollars chase the same amount of goods, each dollar buys less.
The current numbers paint a concerning picture. According to data from the Federal Reserve Bank of St. Louis, the government has engaged in $6.4 trillion of deficit spending, contributing to the dollar’s 16.8% decrease in purchasing power since 2021.
What many Americans don’t realize is that we haven’t yet felt the full inflationary impact of recent spending bills. Only 17% of funds designated for green energy initiatives, 2% of money appropriated for the Science Act, and less than 25% of Inflation Reduction Act funds have actually been spent.
Most people have been conditioned—one might even say indoctrinated—to believe that the only ways to save, invest, or manage money are through government-approved and regulated institutions: banks, investment firms, retirement plans, and similar vehicles. This belief system serves the interests of these institutions, which function as intermediaries in nearly all financial transactions.
These financial intermediaries extract profits from virtually every transaction they touch without assuming any meaningful risk themselves. Whether it’s management fees on investments, interest spreads on loans, or transaction costs on accounts, the financial system is designed to skim value from your money at every opportunity.
What’s troubling is that the inflation triggered by government deficit spending enhances these institutions’ profits, especially when the Fed raises interest rates to “combat inflation.” Banks can quickly raise the rates they charge borrowers while moving much more slowly to increase the rates they pay to savers, widening their profit margins during inflationary periods.
Inflation affects people in different ways. For some households, it means substituting cheaper ingredients in meals, buying store brands instead of name brands, or postponing non-essential purchases. For others, the consequences are more severe—losing homes to foreclosure when adjustable mortgage rates reset, working multiple jobs to maintain the same standard of living, or postponing retirement because savings no longer stretch as far as planned.
The Biblical parable of the ten wise and ten foolish wedding attendants offers a parallel for our modern economic environment. As these twenty attendants waited for the bridegroom to arrive, their oil lamps began to run low on fuel. The ten wise attendants had planned ahead and brought additional oil to refill their lamps. The ten foolish attendants, having failed to prepare, asked to borrow oil from the wise ones, who suggested they go to the market and purchase their own, as there wasn’t enough to share.
This parable underscores a timeless financial principle: building reserves of capital for both opportunities and emergencies is essential wisdom. Those who prepare have options when challenges arise; those who don’t are left vulnerable to circumstances beyond their control.
A truth that many people don’t grasp is that everything purchased is financed one way or another:
Let’s consider a concrete example to illustrate this principle:
Spending $75,000 in cash on a purchase means permanently forfeiting the potential earnings that money could have generated over time. Even at a modest 1% annual return over 15 years, that $75,000 would have grown to $87,073—representing a loss of potential value amounting to 16.7% of your purchase price.
Borrowing $75,000 at just 1% interest and repaying it over 15 years would cost $81,139 in total payments—10.9% more than the original amount.
This “cost of capital” applies to every purchase you make, from homes and cars to education and business investments. It compounds the effects of inflation and represents a hidden drain on wealth that most financial advisors rarely discuss in clear terms. Those who learn to recognize and recover this cost position themselves not just to survive inflation but to thrive despite it.
The first step to beating inflation is recognizing how traditional financial thinking limits your options and could lock you into a losing position. As behavioral economists have noted, it’s easier to indoctrinate someone than to help them recognize they’ve been indoctrinated. The assumptions we make about how money “should” work are often so deeply ingrained that we never question their validity or consider alternatives.
Those who seek better financial outcomes have to be willing to challenge conventional wisdom and develop the discipline to explore different approaches—even when those approaches run counter to what friends, family, and financial advisors might recommend. This doesn’t mean abandoning all financial common sense, but rather expanding your understanding of what’s possible beyond the narrow confines of mainstream financial advice.
One powerful but often overlooked strategy for inflation-proofing your finances involves using participating whole life insurance as a financial tool rather than merely as a death benefit. Unlike other financial products, properly structured whole life insurance offers advantages that can help you recover the cost of capital and beat inflation’s erosive effects.
Here’s how this strategy works in practice:
Imagine you own a participating whole life insurance policy with $75,000 of available cash value. When you leverage this value to make a purchase, finance an investment, or refinance existing debt, the insurance company provides the capital while your $75,000 remains in the policy, continuing to compound according to the contractual guarantees.
If you repay this policy loan at 5% annual interest over 15 years, you’ll generate cash value in your policy of approximately $144,294—which is 33.10% greater than the $108,385 spent repaying the loan. Moreover, that $108,385 isn’t lost; it’s credited back to your policy’s cash value and becomes available for future use, recycling your capital instead of depleting it.
In this scenario, a $75,000 purchase becomes a 33.10% gain instead of the 16.7% or 10.9% loss you would experience through traditional financing methods. More importantly, you recover the $75,000 itself (which would otherwise be permanently gone) and an additional $33,385 that would have gone to financial intermediaries in a traditional loan arrangement.
This approach doesn’t just help you keep pace with inflation—it puts you ahead of the curve by recovering capital that would otherwise be lost forever.
It’s important to understand that not all life insurance policies offer these inflation-beating benefits. Most whole life policies available from typical agents don’t allow for this kind of capital recovery strategy until they’ve been in force for 15-20 years, making them impractical for most people seeking immediate financial resilience.
The key is working with professionals who specialize in designing high cash value whole life insurance policies that generate accessible cash values as quickly as possible without triggering adverse tax consequences under IRS guidelines. These specialized policies are structured to maximize early cash value while maintaining the tax advantages that make whole life insurance such a powerful financial tool.
These policies often earn reduced commissions for insurance agents, making them less popular in an industry driven by sales incentives. This explains why many financial advisors and insurance agents don’t actively promote these strategies—they’re simply not as profitable to sell. For consumers looking to beat inflation and recover the cost of capital on purchases and investments, they represent an invaluable financial tool that traditional financial products can’t match.
While individual citizens can’t control government spending policies or Federal Reserve monetary decisions, we can take steps to protect our personal financial well-being from inflation’s effects. By understanding the cost of capital and implementing strategies to recover that cost, you position yourself to thrive during inflationary periods.
Start by evaluating your current financial structure and identifying where you’re losing money to financial intermediaries. This includes explicit costs like interest payments and fees, but also implicit costs like opportunity loss on capital spent rather than leveraged. Once you understand where your financial leaks are occurring, you can begin implementing strategies to plug those leaks and redirect that value back to your own financial foundation.
Government deficit spending will likely continue until voters demand fiscal responsibility from elected officials. In the meantime, protecting your purchasing power requires active strategies rather than passive acceptance of traditional financial approaches that may have worked in previous economic environments but fall short in our current inflationary reality.
Consider again our example of the $75,000 purchase to understand the dramatic mathematical advantage of capital recovery over traditional financing:
The difference is dramatic—a swing of nearly 50% between the worst and best options. This approach doesn’t just help you keep pace with inflation; it can put you ahead.
The difference is a swing of nearly 50% between the worst and best options—a margin that can mean the difference between financial struggle and financial prosperity, especially when compounded across multiple purchases and investments over decades.
While inflation may be a persistent economic reality for the foreseeable future, its negative impact on your personal finances doesn’t have to be inevitable. By understanding the mechanisms of inflation, recognizing the limitations of traditional financial systems, and exploring alternative strategies like properly structured whole life insurance, you can develop a financial approach that recovers rather than loses capital.
The choice is yours—continue following conventional financial wisdom and watch inflation steadily erode your purchasing power, or explore alternative approaches that help you beat inflation at its own game. Those who are willing to learn, adapt, and implement new strategies position themselves to maintain their financial independence regardless of inflation’s trajectory.
At McFie Insurance, we specialize in designing whole life insurance policies that maximize cash value growth as quickly as possible while maintaining compliance with IRS regulations. These designed policies provide the foundation for implementing the capital recovery strategies described in this article, transforming how you experience inflation’s effects on your personal finances.
The wisdom of the ten prepared wedding attendants remains as relevant today as it was when first shared: those who prepare have options when challenges arise, while those who fail to prepare find themselves at the mercy of circumstances beyond their control. By taking steps today to implement capital recovery strategies, you position yourself among the prepared—ready not just to endure inflation but to prosper despite it.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
This free binder has the information to build your own Infinite Banking system.
