The economy runs on numbers. Some become
headlines for a few days. Others quietly
influence the decisions people make for
decades. Today, we're looking at 10
numbers that explain why you feel poorer
and why understanding them makes the
economy a little easier to navigate.
Welcome to Alux.
Number one, 2% the inflation target.
Now, in much of the world, central banks
aim for inflation of around 2% a year.
They don't see slowly rising prices as a
failure. No, they see them as a sign of
a healthy economy. If prices never
moved, people and businesses would have
a reason to postpone spending. Why buy
something today if it'll cost the same
or even less next year? A little
inflation encourages money to keep
moving instead of sitting still. Now,
that system works well when incomes,
businesses, and investment returns move
alongside of it. The problem begins when
they don't. That's how inflation works.
Coffee becomes a little more expensive.
Your insurance renewal comes back a
little higher. Electricity goes up, the
plumber charges more than last time.
None of those increases feel large
enough to remember on its own, but
together they rewrite your monthly
budget. This is also why inflation often
feels confusing. People hear that
inflation has fallen from 8% to 3% and
assume prices are coming back down.
That's almost never what happens,
though. Inflation measures the speed at
which prices are rising, not whether
they return to where they started. If a
loaf of bread costs $5 and inflation
slows next year, that bread doesn't
suddenly go back to $4. It simply
becomes more expensive at a slower pace.
The higher price usually stays. Now,
think about what has to happen just to
keep your lifestyle exactly where it is
today. Your salary needs to rise, and
this creates one of the strangest
experiences in personal finance. Someone
receives a raise, sees a larger
paycheck, and still feels as though
nothing improved. They're not imagining
it. If the cost of living rose by
roughly the same amount, the raise
protected their lifestyle instead of
upgrading it. More money entered the
bank account, but it brought roughly the
same life. And that is one reason why
people often feel poorer even during
periods of wage growth.
Number two, 30% the housing rule. Now,
financial planners have long suggested
that housing should consume no more than
about 30% of your gross income. That is
not a law and it's not based on some
magical formula. It's simply the point
where millions of household budgets have
historically remained flexible enough to
absorb everything else that life throws
at them. Because once your home begins
demanding a much larger share of your
income, the rest of your financial life
starts to shrink. Housing is unlike
almost any other expense. If money gets
tight, you can postpone buying new
clothes. You can eat out less often,
cancel a few subscriptions, or delay
replacing your phone for another year.
Those choices might be inconvenient, but
they are still choices. Housing rarely
gives you that option, though. Whether
you rent or own, the payment arrives
every month, and it usually represents
the largest bill you'll ever have.
Before you buy groceries, before you
invest, before you take a vacation, your
home gets paid first. That changes the
way every paycheck gets divided. For
decades, home prices and incomes moved
closely enough that most people could
imagine a clear path toward ownership.
You worked, you saved for a down
payment, you bought a home, and
gradually built equity as you paid off
the mortgage. That path still exists in
some places, but in many others, it's
become much steeper. Across cities in
North America, Europe, and parts of
Asia, housing has absorbed a growing
share of household income. Renters often
find themselves spending well beyond the
traditional 30% guideline, while
firsttime buyers discover that every
year spent saving is matched by another
year of rising prices. And this is not
the argument that everyone should go out
and buy a property as soon as possible.
No, there are cities where renting makes
perfect financial sense. There are
stages of life where flexibility is
worth more than ownership. The important
number isn't 30 because it tells you
when to buy. No, it's 30 because it
reminds you that housing has a way of
expanding until it consumes every
financial opportunity around it.
Protecting that number doesn't just
leave more room in your budget, it
leaves more room in your future. And
speaking of housing, number three, 4x.
When home prices outrun wages. Now, in
much of the developed world, home prices
have increased far faster than wages
over the past few decades. The exact
numbers vary from country to country and
city to city, but the pattern is
remarkably consistent. In many major
markets, property values have grown
several times faster than household
incomes. And several powerful forces
have pushed housing in that direction.
Cities became larger and more
productive, attracting more people than
they could comfortably house. Interest
rates stayed unusually low for years,
making it easier to borrow larger
amounts of money. Construction became
more expensive as labor, materials, and
regulations added costs to every new
development. Investors also began
viewing residential property as a
financial asset capable of generating
returns rather than simply a place to
live. and together they created one of
the biggest shifts in personal finance
over the last generation. Housing
gradually changed from something people
earned into something people competed
for. And that competition doesn't only
affect buyers. Higher property prices
eventually influence rent, insurance
premiums, property taxes, and even the
cost of opening a business in many
neighborhoods. A single asset quietly
pushes up the price of dozens of other
things. This helps to explain why many
people feel as though they're running
faster without getting anywhere. The
economy might be growing, their salary
may even be growing, but the biggest
purchase of their life is growing even
faster still. Number four, 80% from
ownership to access. For most of
history, buying something meant you
owned it. You bought a record and
listened to it for years. You bought a
movie and kept it on your shelf. You
purchased Microsoft Office once,
installed it on your computer, and used
it until you decided it was time for an
upgrade. If a company wanted more of
your money, it had to build another
product that was worth buying. Today,
that relationship has changed, though.
More than 80% of software revenue now
comes from subscriptions instead of
one-time purchases. And the same model
has spread far beyond software. Music
became Spotify. Movies became Netflix.
Storage became iCloud. Photoshop became
Creative Cloud. AI assistance, fitness
apps, password managers, gaming
services, and countless other products
are no longer things you buy once. No,
they're services you pay to access every
month. If you look at your digital life,
there's a good chance you don't actually
own most of it anymore. In many cases,
you don't even own the games you
purchase. You're paying for a license
that gives you access as long as the
company allows it. Companies no longer
compete to sell you a product. No, they
compete to become part of your monthly
budget. From a business perspective,
that's a much better model because every
subscriber represents predictable future
revenue. Instead of convincing customers
to make another purchase next year,
companies can focus on keeping them
subscribed next month. For consumers,
that change is more subtle. Each
subscription feels inexpensive on its
own. Yet, over time, those recurring
payments become permanent claims on
future income. The economy didn't simply
move from products to subscriptions. No,
it quietly moved from ownership to
access. And that changed how millions of
people spend their money every single
month. Number five, 90%. Who benefits
when markets rise? Every time the stock
market reaches another record high, the
headlines sound like good news for
everyone. Trillions of dollars were
added to the market. Household wealth
reached another all-time high.
Retirement accounts grew. Investors
celebrated. It creates the impression
that the entire country became richer
together. But the picture looks very
different once another number enters the
conversation. In the United States,
roughly 90% of all stocks are owned by
the wealthiest 10% of households.
Millions of people have retirement
accounts, pension plans, or a few
thousand invested in index funds. But
the difference is scale. For most
households, wages remain the primary
source of income. A family notices when
salaries increase because that's the
money paying this month's bills. Stock
market gains feel much more distant when
the investment account is relatively
small. A household with substantial
investments experiences the economy
differently. Their wealth doesn't depend
on what it earns this year. It also
depends on what they already own. That's
an important distinction because income
and wealth don't behave the same way.
The economy rewarded ownership. The only
question was how much there was to
reward. Number six, $84 trillion. their
great wealth transfer. Every generation
leaves something behind. Sometimes it's
knowledge, sometimes it's culture,
sometimes it's institutions that
continue shaping society long after the
people built them are gone. This
generation is leaving behind something
else. Money. A lot of money. Over the
next two decades, an estimated $84
trillion is expected to pass from baby
boomers to their spouses, children,
grandchildren, charities, and trusts.
Economists call it the great wealth
transfer. And by almost every measure,
it will be the largest transfer of
private wealth in modern history. A
large share of that $84 trillion belongs
to families that are already wealthy. A
single family business worth $50 million
contributes far more to this transfer
than hundreds of ordinary households
passing down their homes. In other
words, the biggest inheritances will
mostly stay among people who already own
substantial assets. That has important
consequences because wealth has a
tendency to build on itself. The
transfer is already changing industries.
Private banks, wealth managers, estate
planners, tax advisers, and family
offices are preparing for millions of
clients who suddenly will become
responsible for assets they've never
managed before. And inside the Alux app,
we've got lessons and entire courses on
how to manage wealth, even in the case
of a sudden windfall inheritance. Get
your free trial started today at
alux.com/app.
But there's so much value on the inside,
you'll want to come back here and scan
this QR code for 25% off the membership
once your trial ends. When historians
look back on this era we're in, they
probably won't remember it as the moment
$84 trillion move between bank accounts.
No, they're going to remember it as the
moment ownership itself changed hands.
And ownership has a remarkable habit of
shaping the opportunities available to
the generations that follow.
Number seven, 70%. Most wealth comes
from assets going up in value. In the
US, the majority of household wealth is
tied to appreciating assets, primarily
real estate and financial assets like
stocks. Now, depending on the study and
the time period, these assets account
for roughly 70% of household wealth. In
other words, most wealth isn't created
because people earned more that year.
Think about someone who bought a home in
a growing city 25 years ago. They might
have paid $250,000, but today it's worth
$900,000. They didn't save an extra
$650,000 from their salary. The market
created that increase. There are periods
when assets lose value, sometimes
dramatically. The financial crisis of
2008 and the market declines of 2022
reminded everyone that appreciation
doesn't happen in a straight line. But
over long periods, productive assets
have historically trended upward because
they represent ownership in things that
continue creating economic value. Cities
grow, companies innovate, businesses
earn profits, land becomes more scarce
and desirable locations. The underlying
economy expands and the valuable assets
tend to reflect that expansion. That's
why economists often describe wealth
accumulation as a shift from earning
income to owning appreciating assets.
Income is what allows you to buy assets.
But assets are what increasingly
determine how wealthy you become.
Number eight, 1971, the dollar stopped
being backed by gold. Now, before 1971,
the US dollar was linked to gold through
the Breton Woods system. Foreign
governments could exchange dollars for
gold at a fixed price of $35 per ounce.
Ordinary Americans couldn't, but
countries could. This created a limit on
how many dollars could circulate
because, at least in theory, there had
to be enough gold to support the
confidence in the system. And for a
while, this arrangement worked
remarkably well. The United States owned
most of the world's gold reserves. Its
economy was booming, and the dollar
became the foundation of global trade.
But over time, cracks began to appear.
America was spending enormous amounts of
money, expanding social programs, and
supporting a rapidly growing global
economy. More dollars were being created
than the country's gold reserves could
comfortably support. So, August 15th,
1971, President Richard Nixon suspended
the dollar's convertability into gold.
It was announced as a temporary measure,
but it never ended. Every major economy
today operates with fiat currency.
Central banks influence economies
primarily through interest rates,
lending conditions, and the control of
the money supply rather than by managing
gold reserves. That affects everything
from mortgage rates to government debt,
stock market valuations, inflation,
exchange rates, even how quickly
countries can respond during crisis.
It's one of those dates that rarely
appears in everyday conversation, yet it
quietly shaped the financial world that
people live in today. Now, you don't
need to believe that leaving the gold
standard behind was good or bad. It's
just important to understand that after
1971, money itself began operating under
a different set of rules. And when the
rules of money change, every part of the
economy eventually changes with it.
Number nine, the rule of 72. Now, the
rule of 72 is one of the simplest ideas
in finance, but it can completely change
the way you think about money. It
doesn't tell you what to invest in or
how to get rich. Instead, it helps you
to understand how time affects your
money. The rule is easy. Take the number
72 and divide it by your yearly return.
The answer tells you about how many
years it'll take for your money to
double. If investments earn 8% a year,
your money doubles in about 9 years. At
6%, it takes about 12 years. At 4%, it
takes about 18 years. The math isn't
perfect, of course, but it's close
enough to show something our brains
don't naturally understand. Small
differences in returns become huge
differences over time. That same math
works in reverse. If inflation averages
6% a year, the purchasing power of your
money is cut in half in about 12 years.
You might still have the same number of
dollars in your account, but those
dollars buy much less than they used to.
The most important lesson behind the
rule of 72 is that time matters more
than most people realize. A small
improvement in your investment returns
might not change much this year, but
over several decades, it can completely
change the final result. The same idea
applies to almost everything else in
life. Skills improve one step at a time.
Businesses grow one customer at a time.
Knowledge builds one idea at a time.
Small improvements don't stay small when
you give them enough time. That's why
the rule of 72 has been around for
centuries. It's a reminder that wealth
is usually built slowly through steady
growth and patience until one day the
results look much bigger than the
decisions that created them. And number
10, 40 years. Someone born in 1980 has
already lived through several completely
different economies. They experienced
the end of the Cold War, the rise of the
internet, the dotcom bubble, the
financial crisis of 2008, the smartphone
revolution, more than a decade of near
zero interest rates, a global pandemic,
the return of inflation, and now the
rapid rise of artificial intelligence.
Each of those events changed the way
businesses operated, created entirely
new industries, and made others far less
important than they once were. 40 years
is enough time for the world to reinvent
itself more than once. This is why
building wealth has always been less
about predicting the future than
surviving it. Nobody correctly predicted
every major shift of the last 40 years.
No, very few people saw the internet
transforming commerce, smartphones
becoming extensions of daily life or
artificial intelligence moving from
science fiction into everyday work.
Looking back over 40 years, it becomes
obvious that the greatest financial risk
was rarely missing a single opportunity.
No, the greater risk was assuming the
world would stay the same. Every
generation eventually discovers that the
economy they retire in is very different
from the economy they started in. All
right, that's a wrap for today, Luxer.
We'll see you back here next time. Until
then, take care.