Prices of everything inevitably go up as time passes. This makes our money lose its worth bit by bit as time goes by. This is what people would call inflation. The rate at which our money has decreased in value due to the increase in prices of the things we buy is something that we should all be familiar with. It’s not an abstract concept. It’s a real phenomenon that affect us so we should understand what it is, how it affects us and what can we do to protect ourselves from it.
On the average, our money loses 5% of its value every year. So if you keep 100 pesos in your treasure chest for a year, by the time you take it out it would only be worth 95 pesos. Sure it’s still 100 pesos but because prices of goods and services have all risen up from the time you decided to keep your 100 pesos, the buying power of 100 pesos has been diminished.
This is why it’s not a good idea to keep your money idle for too long without earning something. For example, if you had your money stored in a bank it would probably earn a meager 1% interest every year. That means you still lose around 4% of its value in a year’s time.
Deposit Accounts in a Bank
Of course keeping money in the bank has its use. It’s where you park the money to give you access to cash as soon as possible. You deposit your money to keep it safe then you withdraw from your account in order to use the money on your everyday needs and wants.
But if you have more money in the bank than you will need in the near future, you are putting yourself at a disadvantage. Money in the bank will sit there with hardly any earnings so it becomes a victim of inflation as prices of goods and services go up. That’s why people who know better find ways to beat inflation.
The idea is for their money to earn while it sleeps by a rate greater than inflation. In our case here in the Philippines, it would have to be something that will earn at least 5% every year.
Strategize to Beat Inflation
This may sound simple enough but finding a good method to do just that would take some work. For example, you may want to consider investing in retail treasury bonds, mutual funds or the stock market. All these are possible options but choosing which one is the best for you could take some time of research.
Besides this there are a host of life insurance products (some with investment components) and bank investment funds that may also be considered better than just saving to beat inflation.
Enterprising people would even go as far as starting their own business to grow their money. The earning potential in a business is great but it has associated risks that can have disastrous effects more than what inflation can cause. Taking calculated and educated risks that do not have the dangerous consequences of destroying your financial standing should always be preferred.