Purchasing power is a core financial concept for freelancers. It measures the real value of your income in terms of the goods and services it can buy.
What is Purchasing power?
Purchasing power is the value of your money expressed in the amount of goods or services you can buy with it. It's not just your income number, but what that income can actually purchase. For example, $100 today buys less than it did five years ago if prices have risen.
Why is this important?
For freelancers, your purchasing power directly impacts your standard of living and business viability. If your rates don't keep pace with inflation, you effectively earn less each year. Understanding this helps you set sustainable prices and plan for long-term financial health.
How does it work?
Purchasing power changes with inflation and your income. When the cost of living rises, your money buys less unless your income increases too. As a freelancer, you must regularly review and adjust your rates to maintain your real earnings. Your location and currency also play a big role.
Pros and cons
A key advantage of strong purchasing power is greater financial security and the ability to save or invest. The main challenge is that it can erode silently due to inflation, especially if you have fixed long-term contracts or hesitate to raise rates. Freelancers must be proactive to protect it.
Conclusion
Purchasing power is the true measure of your freelance earnings. By monitoring inflation and adjusting your rates accordingly, you protect your income's real value. Make reviewing your purchasing power a regular part of your financial planning.
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