*This blog post is my personal opinion only and may contain affiliate/referral links.
$1 worth of good or service in year 2020, yes that was just last year, is now worth $1.03, according to US Inflation Calculator. Think about that for a moment. Think about how buying power is eating up your hard-earned money. And lastly, think about how inflation is a silent killer that many do not notice on their everyday lives.
Inflation does not discriminate any people nor any country. Some places have higher cost of living than others and some are slow to feel its tightening grasp, but inflation really spreads from the very poor to the mega rich.
As prices of products and services increase, income does not necessarily increase. This inequality is sometimes the direct result of people tightening their monthly budget, people maxing out their credit card, people having late mortgage payments, and many more.
Not everybody can have salary increase to catch up with inflation, but this negative effects can sometimes be prevented if people are more conscious on how they use their money.
Think Twice about Putting your Money on Savings Account
The $0.3 cent increase on 2021 is a cumulative rate of inflation total of 3.2%. If your dollar last year is now worth $.97 cents, it means it loses its value if you just let it sit on your wallet. Leaving it on a savings account is not so good either because of the current 0.04% savings interest in US banks.
Invest What is Left of your Expenses
- Index Funds
It really makes more sense to invest some of those monies if you want to beat inflation. Any investment that yields above our example of 3.2% will let your money float and even return a gain for your money. For example, a $100 investment on an index fund that returns 10% a year will give you $110 on your first year. Factor in the low expense too and you have a passive way of investing on the stock market.
- Growth Stocks
Some investors particularly target growth stocks for their potential for long term capital gains. Growth companies like Amazon, Google, Apple and others have grown year in and year out and are excellent hedge for yearly inflation. The risk is higher for growth stocks when compared to Index Funds, but choosing the right companies to invest on the former will pay a handsome and even higher return for long term investors.
- Dividend Stocks
Dividend Stocks are another way of getting more out of your stocks and money. Dividends are company’s profit paid to the investors for holding a share of the company. Some solid companies offer a dividend yield higher than our 3.2% example inflation rate. While some may offer higher dividend yields, it is important to research the company and to not fall into dividend trap.
There are other investment vehicle where you can put your money to work. Be knowledgeable of your investment of choice. The critical thing to do is to invest early so your money won’t be eaten by inflation.
Thank you for reading.