Friday, 29 January 2010

Inflation: your ultimate enemy

Inflation erodes your money systematically. 

Inflation simply means that prices of goods and services go up, so the purchasing power of your money decreases and you have to pay more to maintain the lifestyle to which you have become accustomed. 

For example, your pension may seem to be adequate now, while you are saving for it.  However, after a number of years' retirement, you may suddenly realise that the amount you had set aside is not enough and you cannot maintain your standard of living.  With life expectancy on the increase, people often outlive their money.

Even in the current relatively low-inflation environment, inflation can make a big difference in your retirement. 

For example:  if you hid $1,000 under your mattress today and left it there for 20 years, even at a fairly low inflation rate of 3%, it would have shrunk to the equivalent of $544 - almost half its original value.

So inflation eats away at your money.  It has no regard for how hard you have worked, how many hours you have put in or even how efficient you are.  Your money simply becomes worth less as time goes by.

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