Have you ever noticed that after a while, your savings seem to be not enough for anything? Over the years, prices go up, but your savings always have the same value. This is because savings are also affected by inflation. Do you want to know how to predict your savings based on inflation?
If you would like to Get the most out of your savings and get them to work in a positive way, then take a look at the article we have prepared for you.
What is inflation
To help you understand what we're talking about when we talk about inflation, think about this: over the years, the prices of the goods and services we consume go up. Sometimes just once a year, sometimes several times a year.
This has an impact on people's purchasing power. In other words, As prices rise, people cannot afford the same things they could a year ago., or earlier, especially if their income does not rise to the same extent.
Well, that's what we could say inflation is.
How inflation affects savings
Now we are going to make you understand why inflation affects your savings. And we are going to do it in a very easy to understand way. If you have a car, you will know that it needs diesel or gasoline from time to time.
Now, imagine that you use your savings to buy the petrol you need. With 50 euros, a year ago you could fill up your tank with 40 litres, to give you an idea. However, now, for the same amount of money, you can barely get 30 litres.
That means that Your money is no longer worth as much, and those savings are devalued. In other words, your money is worth less and less. For this reason, many recommend that savings should not be left "idle", but rather invested in financial products that can bring some benefit, however small, because this will help prevent the depreciation of that money.
In the short term, you are unlikely to notice this inflation in savings. But in the long term, it can be problematic, because that money will be used for less and less. And you will need to put more and more into savings to be able to cover any expenses that may arise.
It is true that you have the same money, but it does not yield the same results. And you can buy less. If in 2000 you could buy 100 products, in 2024 you could only buy 75. In other words, your money is no longer worth as much as when you saved it back then. And this always happens, especially if there is an increase in prices (and not a decrease).
Of course, the opposite could also happen, but this scenario is very rare.
How to predict your savings based on inflation
To predict how inflation affects your savings, according to the publication of El Economista, there is the so-called "rule of 72."
We explain it to you. It is a rule by which you should divide this number by the annual inflation rateFor example, imagine that the inflation rate is 7%. That means you divide 72 by 7. The result is 10,28. This tells you that in 10 years, your savings will be worth half as much.
However, this formula actually has a flaw. And that is that considers that inflation over those 10 years will always be the same. And we know from experience that this is not the case, because it could go up or down. And that means that your savings can lose value in more or less time.
Also, not everyone saves the same amount; everyone does what they can, so prices and expenses will affect them differently than other households.
What to do so that inflation does not affect money
As we have told you before, the only solution to prevent inflation from affecting your savings is to invest those savings in something that can help you make money.
Of course, you must do this with your head, because there are many options to choose from. And although investments are a solution, you must not forget that they also involve risks and you can lose money. That is why you have to be on the safe side.
It is also not recommended to put all your money into one thing, but rather to diversify. This way, if one thing goes wrong, you will always have the possibility of losing a little money.
Examples of such investments may be: real estate assets, currencies, purchase of shares, apartments, garages, government bonds and many other options.
Now that you know this, do you dare not let your money lose value? Are you one of those who save or one of those who invest? We'll read your comments.