In Australia the government tries to keep the inflation level at around 3% a year, meaning if a can of Coke cost on average a $1.00 this year then it would cost on average $1.03 next year. But what is true for a can of Coke is also true for everything; housing prices, supermarket costs, travel and anything else you can think of. However you don't need to worry because your company should give you a pay rise which is in line with inflation.

Most people are always happy when they get a pay rise and never really do the figures. If your boss gives you a payrise of the same percentage as inflation, you are not getting a pay rise at all. In fact your pay is exactly the same as it was prior to the rise because your buying power has stayed exactly the same. Sure you may be getting paid 3% more, but if everything costs 3% more then you have neither gained nor lost money.

Do you know there is more and more evidence that some whole sectors in Australia are now not keeping up with inflation on a yearly basis? Scores of workers each year are getting a pay rise, however their total purchasing power is going down. And people in greater numbers are either living a lower standard of life or are turning to debt and credit to make up the shortfall.

Below are a few stories to illustrate just how inflation can affect you.

Grandma Milly has passed away, leaving her daughter Susan $100,000. Susan is still working and she is not 100% sure to do with the money. After a long discussion with the bank manager she leaves it in the back, earning 5% a year interest.

At the end of the year she has made $5,000 in interest. And now of course she has $105,000. So a lot of people would suggest that she has made $5,000. And while technically this is true, this is not where the story ends. No one has taken into account inflation because during the one year period, prices in Australia have risen at 3%. If she pulls out this money now, she could only purchase what $101,850 would have purchased her when she first put the money into the bank account. So in buying terms, she has only made $1,850.

But would you believe, again the story is not 100% complete. In Australia any money you make in bank accounts is considered part of your earnings. Now you must pay tax on this interest. But the government doesn't take into account inflation so they will tax you on the full $5,000 you made. In this year Susan was on a total wage of $55,000 a year. Now she is taxed, that she earnt $60,000 this year instead of $55,000 so she is lifted into the next tax bracket. Now she must pay 19% of her $5,000 in tax. (She may get a portion of this back if she has some tax deductions.) Now instead of earning $1,850 of extra buying power, she has earned $928 extra buying power from her $100,000 invested. Can you see how inflation can take a huge bite out of your money? Of course this is better than doing nothing with it. Had Susan left it under her mattress for a year, she would have gone from $100,000 buying power to $97,000 buying power just one year later.

Let's look at another story about inflation. Mark is 20 years old and earns $500 a week after tax. Each week Mark spends his total $500 on $1 apples. He is just crazy about apples. And of course he buys 500 a week. He does this for a full year.

His boss calls him and gives him a 3% pay rise. Now his wage is $515 a week. "Wow," Mark thinks, "more apples". But when he goes back to the fruit stand they have gone up by 4% a year. So each apple is now $1.04. Now he can no longer afford 500 apples, even though he got a pay rise. He now can only afford 495 apples.

Is Mark working any less hard than last year? No, but his wage will just not cover the original 500 apples. Sure it's only five apples, but what happens if this continues over a life time? Well by the time he hits 80 years old he (he might start looking like an apple, only joking!) he will only be able to purchase 145 apples. This is a total loss of his earning power of 71%. Even with such a small rise in living costs of one percent more than what Mark earns, over time, the problem is extreme.

There is clear evidence that in some industries in Australia the workers' wages are just not keeping up with basic living costs. Thus over time these people are working for less and less in real world terms. A recent television show in Australia looked at bus drivers and their wage increases. It showed without any doubt that the people employed as drivers had lost purchasing power due to their incomes not keeping up with basic living costs over the last ten years. Their whole industry seemed to be endemic with pay rises below living cost increases.

You need to track your pay rises versus inflation rises each and every year. In fact if you have your old pay slips it's quite easy to get the figures and work out if you have been gaining or losing purchasing power. The inflation rate can be found on official government websites going back right to the 1960s.

Only now would you truly know if you have been getting that so-called yearly pay rise.

It's a sad fact that in Australia there are no budgeting lessons in schools. Science, foreign languages and even history lessons might all go to waste the second the teenager leaves high school if they choose not to pursue this as a career. However, something you do need to know about which is just not taught is how to run a budget for the real world.

Personal loans, home loans, credit cards, medical expenses, insurance (of all kinds), the basics of budgeting and saving and the retirement process in this country are never discussed in any formal way in education. However this is one area of life where new adults will have to make choices which will literally affect them in old age. We expect our children to learn these concepts through trial and error or second hand information from probably uninformed/uneducated friends and family members.

Do you know in the US a study was done which found that 49% of all households would have zero dollars to live on only one month if they lost 100% of their income? And while this is not the US, you would have to suggest we would be in the same vicinity of this percentage. This is an extremely scary situation to be in as a nation.

However as a nation we persist with lessons like foreign languages in schools where it has been proven that only a miniscule number of all students who participate in these lessons go on to talk the foreign language fluently. As a nation we need to change course on our money system. And giving kids the education in school is just a small piece of this puzzle to fixing the problem.

It is estimated that an average child sees around 20,000 to 40,000 advertisements a year. But we know the average child in Australia spends zero minutes a year being taught any formal budgeting training. No wonder people's budgets are in such a bad position as all they have seen from outside forces it how to consume and not how to save money.

You could wait until the school system in Australia starts bringing in a budgeting class, however I would not hold my breath. You need to be the teacher of your own children about the world of money. Talk to them and get them to understand the importance of saving and budgeting. It might be some of the best advice you can pass on.

Bill Gates at 60 years old is worth $54 billion; not a bad chunk of change. But he is still trying to improve Microsoft and thus increase his overall wealth. However because the world is only so big his wealth is now only growing at about 3% on average a year. At 80 years old, he will pass his entire fortune on to his 30-year child who will continue to increase his Dad's billions at 3% a year until he his 80 then pass it on to his child, or Bill's grandchild. And the tradition will go on forever.

Jaden Tyles is the exact same age as Bill Gates. If Jaden sold everything he owned – the house, car, dog and even the clothes on his back – he would have one million dollars. To compare this with Bill Gates, he would have 0.0018867% of Bill's net worth right now. Or for every one dollar Jaden has, Bill has $53,000. Jaden's plan are the exact same as Bill's and he will give his money to his child once he reaches 80. The tradition will continue with the Tyles family however Jaden's family is very smart and they are growing their wealth by 15% a year compared with Bill at 3%.

How long would it take for the Tyles family to catch up to the Gates family? Take a guess; a million years, 5,000 years or will the earth have been taken over by aliens because it's taken so long? How about how many generations? Would it be their great great great great great grandchild catching up?

By the time Bill Gates' and Jaden Tyles' great grandsons hit 60, the Tyles' wealth will completely tower over the Gates' wealth. This is only the fourth generation of family members or a total of 150 years. In fact by this time, the Gates family have gone from $53 billion to $3,788 billion, however the Tyles have gone from $1 million to $49,587 billion. The Gates' worth is now only 7.65 percent of the Tyles' worth.

In fact it only took 129 years until both wealths were equal to one another! Could you believe with only a so-called small difference of 3% versus 15%, such a difference could be made?

So you might be thinking so what. How can this help me in my ordinary life? It just goes to show how powerful any number is increasing by a percent year on year. For example when your insurance bill comes in and the price has gone up, don't look at the dollar amount. Work out the percentage amount. Are they putting up the price by more than your pay is going up? If so, this is going to be a problem in the future.

On the flipside, how much more are you worth this year compared to last year? This is a good guide. If you have increased your net worth by 15%, you are probably less than 130 years away from your grandchildren being richer than the Gates family in this situation. But if you are only increasing your net worth by 3% a year, there are probably families pushing up behind you and getting richer.

Have you ever seen that movie with Gwyneth Paltrow? She is running late for a train. She makes the train in one situation but not in the other. Then the movie shows how her life would be different in both situations. Not a bad movie.

Brian is facing the same situation in his life. He is a brilliant salesman and for the last ten years he has been working for a company selling mops and buckets into hardware stores and industrial factories. He knows more about mops and buckets than probably anyone in Australia and in his company he is the best salesperson by a mile. Each year he is rewarded with a 5% pay rise and currently he is earning $50,000.

At a party one night he is introduced to a sales manager from a pharmaceutical company. He has heard about Brian and his legendary sales skills and offers him a job right on the spot. He explains that apart from some little things, the two jobs really just boil down to sales and customer service. He offers him a starting wage of $65,000 a year.

Brian is struck by fear. He wonders whether he will be able to start from scratch and build up his customer base. He worries that he won't be able to learn a new industry all over again and that he might not like his new co-workers. He stays at his current job, continues to excel and receives the 5% pay rise each year for the next ten years. Fast forward ten years and he has earnt a total of $628,892 for his 10 year service.

But let's explore the other option. He takes up the offer and starts afresh. Sure, he is not the number one salesman right away and his wage only goes up by 2% for the first two years but as he gets better with sales in the new position he then gets three years of 3% pay rises. In the last five years of the ten year period he achieves the solid 5% increase he was getting all along. In this case scenario, he would have earned $765,369 or a total of $13,647 a year more.

Life only comes around once. You would be surprised at the number of people who don't take nearly riskless options because they are struck by the underlying fear of a situation. Are you stuck in a dead end industry or job because fear has gripped you? In this situation, time is your enemy. Take stock of your life and work out if you could be working or doing something where they value you more.