Monday, November 4, 2013

Is inflation eating up your money?

Inflation, it’s a word we hear from news, tv and banks but what really is inflation? According to the Merriam-Webster dictionary, inflation is a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.

Too complicated? Yeah! Let me simplify it as much as I can, inflation is when prices goes up and our salary does not! (hehe) Kidding aside, Inflation is the increasing of prices for the goods that we buy from food, appliances, or even services.

The last time I remembered, the Jeepney fare was still 1 Peso per person, now its 8 Pesos per person. When you go to the grocery before and just have 500 Pesos with you, you can feed your family for a week! Now, 500 is just for your midnight snack. The taxi before, it was 16 Pesos plug down and 1 peso add-on, now it’s 40 Pesos plug down and 3.50 Pesos add-on.

How prices have changed! This is the effect of inflation, it lowers our buying power. So how does this affect our savings? By so much! Imagine you are saving in somewhere which only give you 1% interest a year and our inflation rate per year on average is about 3% to 4%.

It goes like this:

100,000 savings
x      1% Interest
x      20% Witholding tax (let’s not forget this!)

(1000 - 200 = 800 total interest)

So, 100 000 + 800 = 100 800. This is how much money you will get after 1% interest, now let me put in inflation.

100 800
x        4%   (for example sake, let’s use 4%)

So, 100 800 - 4032 (as inflation) = 96768 Pesos

What does this mean? It means that the value of your 100 800 is not actually 100 800, it’s 96768, why? That is because of inflation, it devalues your money! How to beat inflation? Simple, Invest in the the mutual fund. Mutual funds, when the market is good may go up to 12% in interest. And the mutual funds does not have any tax!

Here's how it goes:

100,000 savings
x     12% Interest

So, 100 000 + 12000 = 112 000

112 000
x       4%   Inflation

So, 112 000 - 4480 (as inflation) = 107 520 Pesos

This actually beats inflation! Your 100 000 is still growing and the value is still more than 100 000!

This my friend, is a way to beat inflation and you are sure to have the value for your money! Save and invest now!

God bless you!

Picture is not mine, all credit goes to pokemonstevenstone found at