Inflation: A very ugly thing

What are the things that hinder us in succeeding financially? How can we cope with these obstacles we face?

There are several obstacles on the path to financial success. But, as everything is with our financial life, the decision on what to do with these mistakes is up to us. What is important is that we learn to recognize these mistakes and accept it so that we can take action.

Inflation
Inflation is the economic condition of sustained price increases. Money continually loses its value over time. As the prices of goods and services increases, the value of money decreases. So, in order to succeed financially, we should look for ways to beat inflation. We cannot run from inflation. Most of the basic goods in life are subject to inflation as it affects the basic commodities such as food, water, shelter, and in some cases fuel or energy. Inflation is a condition that will never leave us. It has been so that all the countries in the world experience inflation. It is like a disease in the world of finance.

So, how can we beat inflation?

If the inflation rate today is 6% then prices of certain key commodities increase by a rate of 6%. So, in order to combat inflation, we must make sure that our income, savings and investments should be above 6%. If we invest our money on a savings account with 4% annual interest, we lose. This is because we cannot buy the same amount of goods this year as we did last year therefore reducing our purchasing power. This is probably the main reason why savings accounts are not good investments and must only be used when you need to keep your money and use it after a short amount of time.

It is not enough just to save and invest in something with an annual return. We must have investments that are above the inflation rate so that we can beat inflation. This is important because we could not achieve financial success if our savings depreciate over time thus lowering purchasing power. The sad part is that most investments today simply just breaks even or sometimes lower than the inflation rate. This is due to the global financial crisis that the world is experiencing today. So remember, always keep your money where it could EARN.

There are a lot more hindrances to financial success which I will discuss in the following chapters. So, stay tune in Compound Savings Interest.