Inflation – What's that?
It’s been around since the beginning of time and has had the most impact on our finances, especially when it comes to savings.
$0.25 Big Macs are a thing of the past, a Kit Kat bar still comes with 4 pieces. While the size remained the same the price practically doubled, give me a break. This being said, the cost of living has always been increasing providing us less value for our dollar.
To ensure you’re saving effectively, you want to be sure that your money is invested in vehicles that are appreciating over time. Outpacing the rate of inflation which is approximately between 2% - 3% in North America.
When it comes to inflation there are many factors involved. Money supply is at the heart of it all. If there is more money in circulation, prices go up. In North America under the current monetary system, which utilizes a Central Bank to govern monetary policy, they play a critical role on the rates of inflation. Although the cost of living is increasing and on goods, and it may seem minimal year to year, does your income increase at the same rate? This is why it’s important to constantly review your budget and ensure your savings are outpacing the rate of inflation. Over the past couple of years, individuals may save their money in high interest savings accounts or guaranteed locked in investments ranging from 1.20% - 2.05%, while inflation has been between the 2% - 3% range. Great job if you’re saving, let me honestly acknowledge that, but what’s growing quicker, the inflation or your savings?
A great video to watch on this topic is by Ray Dalio: The Economic Time Machine