Inflation & How It Affects Your Buying Power

“A penny saved is a penny earned.”

Ibet most of you have heard that saying before, but have you ever taken the time to think about what stashing away your savings in a typical savings account or a coffee jar buried in your backyard actual does to your hard-earned cash?

Let’s talk about that for a bit.

I would like to start off by saying that I am a huge advocate of saving a large percentage of your income. In fact, I wish I would have learned and practiced this sort of saving mentality much earlier in life. It is only now that I have begun to highly prioritize saving to this degree.

All of that being considered, simply saving won’t make you wealthy.

Here’s why…

in·fla·tion
a general increase in prices and fall in the purchasing value of money.

Inflation is the process of goods and services costing more as time goes on. Let's take a look at the cost of housing.

Per data from www.dqydj.com, the average price of a home in 1953 was $18,080.26.

So what does that mean?

Your dollar would go much further in 1953 than it does today.

What this teaches us is that if we simply stash away our cash in a place where it will never grow (remember your can of cash in the dirt?) not only are we not taking advantage of any growth an investment would bring, but our dollar is becoming less and less valuable each year. In other words, in 1953 you would have stashed enough cash to buy an average home, but when you retired many years later you wouldn't be able to afford a studio apartment.

Per www.inflationdata.com, “the average annual inflation rate is 3.22% (from 1913–2013). That doesn’t sound too bad until we realize that at that rate prices will double every 20 years.”

You may be asking yourself, doesn't my savings account pay interest on the funds I hold there? Well, I’ve got news for you …

According to www.bankrate.com, the average interest rate for a savings account in 2020 is 0.1%. Not quite keeping up with inflation are we?

Logically your next question might be, where can I keep my money so it isn't losing value? Here are a few suggestions I would recommend, many of which I personally use:

A high-yield savings account — There are many options for online high-yield savings accounts these days. I won’t get too far in the weeds here, but Ally offers a high-yield savings account that’s now paying 0.80%. This is much higher than your typical savings account, and it comes with the security and stability many look for in a savings account.

Stocks (ETFs & Index Funds) — There is a ton of opportunity here, especially when taking into account compound interest. Again, I won't go into great detail here, but investing in the stock market can build great wealth. We will discuss this later down the road, but investing in the market doesn't have to be complicated. There is risk involved, but there are many ways to invest that can greatly reduce your risk. If you’re looking for an easy way to invest in the market I would suggest signing up for a service like Acorns. I have used their service for many years. I set up a weekly deposit which goes into my account with them. All you need to do is select the type of account you would like, conservative to aggressive, and you’re off to the races! I have experienced great growth using this platform, and if you sign up using the link below you will get $5 added to your account. I will also receive a small kickback when you sign up.

Sign up for Acorns and get $5 added to your account when you use this link — https://acorns.com/invite/3D9QS8

Real Estate — Some of my largest financial gains have come from the real estate I have owned for my personal residence. Many people think real estate investing involves only purchasing investment properties you don’t live in, but a significant amount of money can be made if you purchase your primary residential property correctly. We will talk about that more in a later article.

The last thing I will say is, I am a believer in saving. We all need to keep cash in our reserves in case of an emergency. What I would like to point out is that there are many avenues available to you to grow your money and outpace inflation. I would encourage you to take advantage of the ones that make the most sense to you.

Talk soon,

Jarod Dickson

***This article was not written by a licensed professional and the information is for entertainment purposes only.***