If you pay attention to any financial news, you’ve probably heard analysts and economists talk about the economy’s inflation rate. But you probably miss the important question over there: How these inflations are going to affect you personally? Whether it destroys the value of your savings and investments. Here, we will discuss the impact of rising inflations on your personal life.
What Is Inflation and How Does It Work?
Inflation occurs when the country’s average prices rise. In other words, when the price of everything rises, which decreases the purchasing power of the public. Assume that a bicycle costs Rs.1000 today and that the current inflation rate is 5%: The bicycle will cost Rs.1050 next year. A Rupee bought a lot more in 1964 when the typical price of Gold in India was only Rs.63.25 (24 karats per 10 grams). Wages and prices have risen throughout time, pushing the overall price level higher, lowering the worth of a single Rupee. That’s how inflation works.
How Will It Affect Your Savings?
Prices are expected to rise in the future, and inflation will eat up the value of your savings over time. This is particularly obvious when dealing with money. If you keep 1,00,000 Rs, at your locker, it may not be enough to buy as much after 10 years. While you haven’t lost money, but inflation has eaten up your purchasing power, resulting in a lower net worth. You can earn interest by keeping your money in the bank, which helps to offset the inflation a little bit. But your savings on the bank will not grow quickly enough to compensate for the entire inflation loss, because the Interest Rate provided by the banks for your deposits is always lower than the inflation rate.
What Effect Will It Have on your Investments?
Many people don’t deposit all of their money in the bank due to the rising inflation rate over the bank interest rate. As a result, some people prefer to invest some of their money in potentially higher-growth assets such as stocks or mutual funds, which gives returns more than inflation (although they also carry a risk of lower earnings or loss).When deciding what kind of investments to include in your portfolio, you should also consider inflation risk. Inflation can cause a negative impact on fixed investments such as fixed annuities and Fixed Deposits. Some investors prefer to diversify their portfolios by including gold, mutual fund, or inflation-indexed investments.
What Can You Do to Prepare for Inflation?
To beat inflation, don’t put your money at your locker or in a savings account that pays an interest rate, lesser than the inflation rate. Instead, you should put your money in investment Schemes that generate better returns than inflation. Selecting the correct Investment can only help you in overcoming inflations, also at the same time, it will help you to achieve your financial goals.
Let’s take an example to better understand the impact of inflation. Josychan usually keeps all of his money in a bank savings account that pays 4% interest each year, but Thommichan, on the other hand, actively invests his money in the best mutual funds in India and generated an annual rate of return of 12%. Assume that the current inflation rate is 6%. Who do you think will be better equipped to combat the effects of inflation over time? Naturally, Tommichan will be far significantly better than Josychan in terms of inflation and wealth accumulation. When you plan for investment always remember to select an investment scheme that beat inflation and at the same time it is less risky, in that Such Mutual Funds in India is the best option that helps you to create wealth and to beat inflation in the long term.
Conclusion
Inflation is an unavoidable market force. However, by anticipating inflation and implementing a sound investing strategy, you can be able to avoid the inflation loss and that helps to grow your wealth consistently for a long term. If you want to create wealth in a more concentrated and systematic way, Please Contact us