How to protect your savings from inflation?


Inflation is a real threat to your savings. With inflation on the rise, your savings are shrinking and you may not be able to maintain a comfortable standard of living or retirement without additional income from other sources such as personal investments that provide an inflation-adjusted return.

What is Inflation?

Let’s start with the Basics, what is inflation? Inflation is when your money loses purchasing power over time. Inflation is not something most people think about, but it's an important factor in our economy. The concept can be tricky to understand because even though your money might look the same as before and still have the same value on paper, it is, unfortunately, worth less than it was a year ago.  Inflation also affects those living paycheck-to-paycheck with daily expenses like food & shelter rapidly adding up while wages remain stagnant.

The Consumer Price Index (CPI) is a common way to measure inflation. It does this by tracking the purchasing power of currencies against average prices for goods and services." The Consumer Price Index (CPI) measures how much your euros or pounds will buy in comparison with last year. If your currency buys less than it did last year, its purchasing power has decreased due to inflation.

In the last two years, inflation has been on a sharp rise. It hit 2,6% in France almost 4% for UK citizens while Americans saw an increase of 6.2%. This is bad news not only for your salary but also for savings as prices seem to be increasing at much faster rates than before.

The pandemic set many people's households on a spending spree. This is because they had fewer outgoings during the lockdowns and still received income, which created the global demand for products that we saw at this time period in 2020- 2021. The factories weren't being staffed and most borders were closed so supplies couldn’t feed into international supply chains with ease; as such prices grew due to lack of availability.  The inflation was also generated by governments who printed trillions worth of currency, in an effort to maintain their economies during the pandemic.

How to protect your savings from inflation?

However, it doesn't mean we're powerless in protecting ourselves from rising costs; here is how to fructify your assets to fight back inflation, let’s dive into how investing can help.

An increasing number of people are turning to investment to counteract the inflation effect on their savings. A savings account typically won’t earn enough interest to beat inflation. Yield plans and ETFs can offer up to 8% return per year on your fiat currencies, which is more than enough for both your money's worth as well as its growth over time!

Paying off your debts is an important aspect of personal finance. When inflation strikes, debt can quickly grow. This is especially true if the rate at which you owe money on your loan or credit card increases by even just 1%. This would mean that even though you are paying off your debt, each payment becomes more expensive.

In today's economy where interest rates are low and credit cards offer tempting rewards like cash back or airline miles for purchases made with them, it is recommendable that debt owners get serious about reducing their high-interest consumer obligations.

Inflation is an ever-present danger, but it doesn't mean you have to accept the status quo. taking note of your financial situation and making sure that inflation rates are being taken into account when building up savings and investing money is a must for long term financial success.

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