Inflation..and how it eats your money!
Inflation is an economic concept. What the cause of inflation is, is not important to us from the point of view of this article. What is important to us is the effect of inflation!
The effect of inflation is the prices of everything going up over
the years. A movie ticket was for a few paise in my dad’s time.
Now it is worth Rs.50. My dads first salary for the month was Rs.400
and over he years it has now become Rs.75,000. This is what inflation
is, the price of everything goes up. Because the price goes up, the
salaries go up.
If you really think about it, inflation makes the worth of money
reduce. What you could buy in my dad’s time for Rs.10, now a days
you will not be able to buy for Rs.400 also. The worth of money has
reduced! If this is still not clear consider this, when my father was a
kid, he used to get 50paise pocket money. He used to use this money to
go and watch a movie (At that time you could watch a movie for 50paise!)
Now, just for the sake of understanding assume that my dad decided in
his childhood to save 50paise thinking, that one day when he becomes
big, he will go for a movie. Many years pass. The year now is 2006. My
dad goes to the theater and asks for a ticket. He offers the ticket
booth guy at the theater 50paise and asks for a ticket. The ticket
booth guy says, “I am sorry sir, the ticket is worth Rs.50. You
will not be able to even buy a “paw wada” with the
50paise!!”
The moral of the story is that, the worth of the 50paise reduced
dramatically. 50paise could buy a whole lot when my dad was a kid. Now
50paise can buy nothing. This is inflation.
What does this tell us?
Do not keep your money stagnant. If you just save money by putting
it your safe it will loose value over time. If you have Rs.1000 in your
safe today and you keep it there for 10years or so, it will be worth a
lot less after 10 years. If you can buy something for Rs.1000 today,
you will probably require Rs.1500 to buy it 10 years from now. So do
not keep money locked up in your safe. Always invest money. Always make
your money grow!
Whatever you do, do not just lock your money up in your safe and keep
it stagnant. If you do this, you will be loosing money without even
knowing it. The more money you keep stagnant the more money you will be
loosing.
Next - "The power of compounding!" >>
<< Previous - Investing for tax saving!
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Table Of Contents
- How to manage your money? - Intro
- Why should you invest your money?
- >> For making "big buys"!
- >> For tax saving!
- >> Inflation
- >> "The power of compounding!"
-
How to invest?
-
Investing in Mutual Funds!
- Assured return investments...
- >> Fixed Deposits (FD's)
- >> Public Provident Fund (PPF)
- >> Employees Provident Fund (EPF)
- >> National Savings Certificate (NSC)
- >> Kisan Vikas Patra
- >> Post-office - Monthly Income Scheme
- >> Post-office - Time Deposits
- Insurance