Inflation

How does inflation impact your savings?

24 January 2022
How does inflation impact your savings?

One Crore might sound like a lot of money — and it is — but in 10 or 15 years it will probably sound like less money because it will have less buying power than it does today. The reason is inflation, and it can impact how you plan for your financial future.

When you save, keep in mind that the prices of commodities and services may rise in the future. A sum that appears significant today may not appear so in the future. As a result, having an additional investment cushion is recommended. This guarantees that your hard-earned money will preserve its value over time and inflation. Let us know more about inflation & how it really affects our saved money.

  • What do we mean by inflation?

In simple terms, inflation is the rate of increase in the cost of goods and services in an economy. When the cost of goods and services increase faster than what you have in your savings account, the money you have will buy fewer and fewer goods and services over time. Unfortunately the need for these goods and services don’t necessarily go away. Therefore, you need to be sure you have sufficient income to meet your required expenses. The rate of inflation varies from year to year and is an important factor to consider when making financial decisions.

  • What’s the situation when inflation rises sharply?

When inflation rises, the cost of products and services rises as well. This means that you will have to pay more for the same goods and services. This is referred to as a cost-of-living hike. This also means that you won't be able to acquire the same items and services in the future with the same amount of money. This is referred to as a decrease in money's purchasing power.

Saving and investing money can offer you returns that will allow you to compensate for inflation in the future and maintain your current lifestyle.

  • How does Inflation impact your savings every year?

As stated earlier, the rate of inflation keeps fluctuating. Therefore, you have to be more calculative and cautious. If inflation is 7% per annum, you will need to save an additional 7% to ensure that your savings will be enough to help you reach all of your long-term financial goals, such as your dream house, your child's education, your retirement, and so on. As a result, you should budget for inflation and begin investing in financial instruments that will provide you with better returns to offset the consequences of inflation.

Let me give you an example.

Let's say the annual inflation rate is 7%.

The table below shows how inflation affects spending. Assume that a product today costs ₹1,00,000. The table below illustrates how much it will cost over time as a result of inflation.


Year

Purchasing Power

Prices (Considering Inflation)

0th Year (Starting year)

₹1,00,000

₹1,00,000

10th Year

48,398

1,96,715

20th Year

23,423

3,86,968

You can see how with time, there is a steep rise in the prices of goods and commodities considering the inflation rate. Just notice how your expenses will continue to climb over time, while the value of your savings will decrease. This emphasizes the importance of factoring in inflation while making investing decisions. To combat the consequences of inflation, begin investing in financial products that can provide you with larger returns.

  • How to Plan for Inflation?
  1. Do not shy away from equities: Equities have a higher chance of keeping pace with inflation. Investors should focus on corporations that can pass their rising product costs to customers, such as those in growth stocks as well as the consumer staples sector.
  2. Make a solid investment strategy: A solid investing strategy can serve as a springboard for future savings. A smart strategy and technique can assist you in combating inflation and ensuring adequate long-term savings.
  3. Invest through Stack App: Stack had already thought of this pre-dominant problem and has come up with a novel solution for this. With Stack, not only are your Savings getting 3x returns than what banks offer, also, your money is beating the inflation every single time. Stack’s Nobel Prize Winning Strategy keeps your money 100% safe and liquid, with no extra costs. It is like planning to grow your wealth, and that too absolutely free. How about trying the Stack App? The link is given below: