We just got back from our annual summer European adventure!
And wow, each time we go I find a new respect for the European lifestyle.
The food, the wine, the espresso, the olive oil, the salt, the butter, the fresh fruits and the bistecca alla Fiorentina!!
Those Fiorentina steaks are remarkable.
I'm not joking. I'm a serious self-proclaimed steak aficionado and I enjoyed more great steaks in a one week period in Florence this summer than I've ever experienced in my life, LOL!!
Mix in some serious olive oil on everything (including the steak) and some extraordinary wines...and wow, pure heaven.
That's us up top on a Vespa adventure through the Tuscan countryside around Florence.
We stopped into a little Tuscan place for lunch with incredible views of the rolling hills around us.
Pretty magical experience all around.
I think I could spend a few years in Florence fully immersing myself in the history and the food.
Anyway, as we slowly settle back into things here I decided to do a little update on what our little money printer has been up to...just to verify a few of our assumptions.
Is 12% still the magical money number that we have to grow our income by, our net worth by, annually to "get ahead"?
Let's check it out...
Let's take a look at how much Canada's M2 Money Supply has increased annually over the last 24 years.
Here's where it was in the year 2000...
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And here's where Canada's M2 Money Supply is at with its latest reporting in May 2024...
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With some quick math we can determine that this is a 7.2% compound annual growth rate.
Said differently, your Canadian dollars are being devalued at a rate of 7.2% annually (compounded).
Using this number, we could argue that if you're not increasing your income and/or your net worth by this amount per year, every year, you're technically falling behind financially.
So where do we get 12% as our magical money number from?
Well, let's say we enjoy travelling around the world and we want our purchasing power to be protected globally.
If that's the case, in our opinion, it would make sense to go to the main player of the financial system to see what's going on.
And for that, let's have some fun and go right to the U.S. Monetary Base itself.
How fast is it being increased?
Here's the chart showing the U.S. monetary base in May 2000...
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And here's the chart showing the number it hit in May 2024...
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That's a 10.7% compound annual growth rate.
This base money leaks out into the economy in different ways.
Sometimes this base money is turned into M2 Money Supply through banks and new lending.
Sometimes it's used, in a convoluted process, to eventually leak out into the economy via stimulus cheques and government spending.
People will argue ad nauseam over if an increase in the monetary base actually ends up creating "inflation".
Nick and I are simple people.
We've learned enough over the years to conclude the detailed mechanics of the banking system don't really matter.
If Canada's M2 Money Supply is going up at 7.2% compounded annually and the base money of the entire financial system is going up 10.7% compounded annually...then we better beat those numbers.
And to be safe, because who knows how accurate the government numbers really are, we'll aim to beat 12% per year.
12% is the magical number we must beat, each and every year, with our income growth, our asset growth, our everything...if we want to keep up.
This isn't really the number we need to beat to "get ahead" financially.
That's just the number we need to hit to NOT FALL BEHIND.
Insane, we know.
So if we want to grow our savings, our incomes, our assets we need to actually hit 15%, 20%, 25%, etc.
It's quite the task.
And this is why so many people this summer, Canadians...Italians...Croatians, that we speak with can't understand what's going on with the price of food, rent, homes, and life.
This stuff isn't discussed in grade school, high school, or even university economics.
It's left to us, ourselves, to figure out how the money game is played.
Next week we'll talk about what we're doing ourselves to stay ahead of all this.
It's important.
And it's important because we believe there's about to be an increase in these numbers that will be sustained for some time. We'll explain that too.
This week, just know that our magical money number is 12%.
That's the number our families must hit every year if we want to continue living life on our terms...at a minimum!!
Here's another question for you...
If interest rates stay relatively high but the governments and central banks increase M2 Money Supply at a faster rate, can property prices come down?
Hmmmm. We'll explore this too over the next few weeks.
Enough with this madness for now, I'm going to try and find some of the best steaks in Ontario for the weekend to recreate my Bistecca alla Fiorentina.
Priorities!! LOL.
Hope you're enjoying the summer out there!
Tom & Nick
