Government or other state financial authority often heard announcing the
inflation rate of a certain period. For example, in the USA the
inflation rate from Jan-Jul 2013 is average 1.6%
(www.usinflationcalculator.com)..
Well, now the basic question is.. What
is inflation? How it affects our personal finances? Is important to know the
inflation rate? What should we do to deal with? What is inflation rate?
Based on common understanding of economic, inflation is a process of
rising prices in general and continuously, caused by various factors.
For example: increased consumption, excessive market liquidity, un-smooth
distribution of goods. Also, it could be said that inflation is the
decreasing process of currency value continuously. Simply put a can of
coke. Ten years ago maybe only needs 10 or 15 cents for a can. Now maybe
it needs around 70cents or even $1. The price continues to rise while
the purchase value of money ($1) becomes lower and lower.
The rising price of goods, while our salary still fixed, the amount
of money needed to buy the same product will be bigger. Thus, probably
the amount of money that can be set aside for saving or investment for
each month will be reduced.
Is important to know the inflation rate? YES, it is very important!
Knowing the inflation rate makes us become more aware of what is going on and what to do.
For example, our country inflation rate is average 5% this year. Is the
money we save or invest growing? I am afraid not! What should we do to
deal with inflation?
After knowing the meaning of inflation, inflation rate, and its relationship with to our financial life, some important things to do are:
1. Check our fund placement allocation.
2. Diversity is important. Do not keep all money in just one financial product. (See Asset Allocation).
3. Saving our money in saving product will only grow 1-2% per year. While in deposit probably could grow around 3-4% annually. In the meantime, inflation rate is average 5%.
4. Find another financial product that can grow your money compete with inflation rate.
5. Change our dreams become goals. Clearly state your expected amount to reach, what is your financial goal, when to achieve it. This is because the price of our ‘dream’ will continue to change each year in line with inflation.
6. Pursue your dream by raise money on the right product, so that dream can turn into reality.
[image taken from: seekingalpha.com]
[image taken from: seekingalpha.com]
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