MyMoney Online

Inflation robs you into the future….

What is inflation?

Inflation is the measurement of the average increase in prices of goods and services in an economy. It is a key indicator used by central banks to protect the value of the currency into the future. The current inflation rate in South Africa is 6,2%. This means that your rand is worth 93,8 cents compared to a year ago.

How does inflation affect you?

It stands to reason that inflation needs to be contained. If not, we will simply be poorer in the future. This is the primary function of our Reserve Bank which has an inflation target of 3% to 6%. At the current rate of inflation the rand will take 12 years to halve in value. If inflation moves to, say, 12%, , then your rand will halve in value in 6 years.

You have to save.

Helping you to understand things a bit better SA Households are barely making ends meet, so very little is being saved. Saving is the only way towards financial independence. If you are merely existing from month to month the problem will only get worse as the value of your monthly income is eroded by inflation. Saving towards a nest egg will provide a source of funds in the future which you can use to counter inflation and wean yourself off having to generate an income.

Keep it real.

To improve the purchasing power of your savings your returns should be higher than the rate of inflation. If, for example, inflation is 6% you should aim for returns above this. If you achieve, 10% (the so called nominal rate) then you improve the value of your return by 4%. This is called the real rate of return (Nominal rate – inflation rate = real rate). So when investing into the future you need to keep your returns real. You then are effectively improving the value of your money.

Paying off debt beats inflation

So the way forward is to invest in inflation beating assets. This is going to be difficult in the foreseeable future as the global economy is slowing and returns on investments will probably weaken even further before they improve. Perhaps your savings strategy should focus on reducing debt in the meantime. There is certainly a better return found in knocking off a high interest rate which is way above the current rate of inflation.

For more information, listen to the audio below


This article first appeared on 702 : Inflation robs you into the future….


Recommended

by NEWSROOM AI
Read More
How to make best use of your year-end bonus

How to make best use of your year-end bonus

The Money Show’s Bruce Whitfield interviews Warren Ingram, Personal Financial Advisor and Executive Director at Galileo Capital.

How to help your children get rich (long before they start working)

How to help your children get rich (long before they start working)

Time. It’s the most important factor, says Sam Beckbessinger, author of “Manage Your Money like a F*cking Grownup”.

10 most-read 'personal finance' articles of 2018

10 most-read 'personal finance' articles of 2018

Making ends meet, investments, property, debt, financial freedom… these were the very best "your money" articles of the year.

How to handle your over indebtedness…

How to handle your over indebtedness…

When you've finally succumbed to the fact that you're over your head in debt and cannot cope any further, here's a way forward.

The bright side of retirement reforms

The bright side of retirement reforms

Paul Roelofse explains the advantages of retirement reforms which will be effective from 1 March 2016.

Update your personal balance sheet….

Update your personal balance sheet….

Paul Roelofse says your personal balance sheet is the starting block in towards financial freedom.

Popular articles
Hawks nab seven traffic officials in Khayelitsha for taking bribes

Hawks nab seven traffic officials in Khayelitsha for taking bribes

Western Cape Hawks spokesperson says those who paid the bribes will also be arrested.

Storm in a 'G' Cup -  why are SA clothing retailers ignoring big-breasted women?

Storm in a 'G' Cup - why are SA clothing retailers ignoring big-breasted women?

Many women say they are forced to buy bras from overseas and import them to SA at great expense.

Popular shoe brand Vans ask Ackermans to remove "knock-offs" from shelves

Popular shoe brand Vans ask Ackermans to remove "knock-offs" from shelves

Vans' brand manager says although this is a recurring problem its main concern is that this particular "fake" is a very close copy.

10 safety tips from Sanparks following latest robbery at Table Mountain camp

10 safety tips from Sanparks following latest robbery at Table Mountain camp

The Slangkop Tented Camp in Kommetjie was hit by thieves the weekend. Here's advice on how to keep safe in the area.

Here's how to check your load shedding schedule in Cape Town

Here's how to check your load shedding schedule in Cape Town

Eskom has warned that more power cuts can be expected as maintenance continues over the next twelve months.

Motorist who killed two goslings has been identified

Motorist who killed two goslings has been identified

According to the SPCA, he will be charged with contravention of the Animal Protection Act.