The damage inflation does to your savings and how to fight it
While inflation is inevitable, its impact can be devastating, especially on something as precious as your savings. This article will bring you up to speed with the effect that inflation has on your savings, as well as show you how you can protect your funds and fight this growing problem.
The Relationship Between Inflation and Your Savings
Your savings account has always had a complicated relationship with inflation. In the simplest of terms, inflation wears away at the purchasing power of your money. For example, if you leave a 100 rupee note in your dresser drawer for a year, and the inflation rate goes up 3% that year, you will need 103 rupees to equal the same amount of funds next year. While this seems like a minimal increase, think of the damage an inflation increase could have on your savings account over an extended period of time.
On top of this, the interest rates that banks issue are hardly enough to combat this consistent erosion, making things like future planning and retirement an uncertain and uncomfortable subject. Despite this, some financial institutions, such as Bajaj Finserv are issuing Fixed Deposits with attractive cumulative interest rates.
What Else Does Inflation Affect?
Lenders: Financial institutions are well aware of the effects inflation has on lending. Inflation is generally dealt with by increasing the interest rates on your loan in accordance with the rise in inflation. While this prevents financial losses to the lender, it can make things difficult for you as the borrower, especially when a home loan with a longer tenure is considered. Bajaj Finserv provides some of the lowest interest rates around for their various Loans including both Home and Personal Loans, among many others.
Investments: The effect of inflation on investments is relative to the type of securities that you have. Over time, a company’s earnings should be able to match the rise of inflation. The exception of this is something called stagflation, which is the result of a bad economy and increase in stocks. When evaluating financial statements, it is important to note that inflation can cause problems with earnings based on the technique the company is using to value inventory. Bajaj Finserv offers various Mutual Funds Schemes managed by trained professionals that will carefully invest your funds in the most reputable of companies.
Financial Statements: Inflation has an effect on financial statements as well. In most parts of the world, primary financial statements are created based on a historical cost basis of accounting, rather than on the actual changes in the levels of prices. This method causes distortions in financial statements such as asset values for inventory not reflecting their economic value to a business.
The Indian Economy: There are many devastating effects of inflation on the Indian economy. While inflation from poor crop production and increase in imported goods has caused the prices of food and other necessary items to rise, those living below the poverty line cannot afford these basic goods. This leads to starvation in many families across the country.
While the effects of inflation seem intimidating, there is still hope! Following these basic steps can show you how to beat inflation.
- Invest in long term equities and mutual funds
- Invest in dividend-paying stocks
- Use assets like gold to create a barrier against inflation
- Make changes to your fund portfolio
- Invest in inflation-indexed bonds
Additionally, associating yourself with a reputable financial institution, like Bajaj Finserv, who provide countless financial services to every corner of India, can be helpful as you continue to combat the blows of inflation.