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The news keeps talking about inflation, and it sounds bad. But what does it really mean?
The first and most obvious thing is prices for everything go up when inflation happens. So now everything has become more expensive.
And the worst part is, price increases are considered “sticky” which means they generally don’t come back down after inflation has cooled off.
Ok so prices have gone up from inflation, I just won’t spend as much, and I’ll save more. That will protect me right?!
Unfortunately the worst part of inflation is it reduces the purchasing power of your money. So that means your savings are getting devalued even though you haven’t spent anything.
If you have $10k saved and inflation is at 10%, in one year the purchasing power drops all the way to about $9,100.
Right now as of the latest 2022 stats, the current rate is 8.5% inflation. If we assume a 6% rate for 5 years time, your $10k drops below $7,500! That’s 25% down the drain for nothing!!!
To hold the purchasing power of your money, it has to be appreciating at the same rate as inflation. Otherwise inflation is robbing your hard-earned money just for sitting there!
Want to know how to protect your money from inflation? Check out this article here.
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