Friday, May 16, 2014

Beating Inflation Black and Blue

It feels bad when you lose money. What’s worse is when you are not aware that you are losing some of it. And what's harder to realize here is the fact that you can't fight something you do not know about.  Majority of Filipinos lose money without even noticing it. They are sleeping soundly at night while their money is kept in their savings account thinking that everything is safe only to find out later that they already lost significant value without even them touching their hard earned moolah. The culprit is sneaky. It will hurt you without seeing how. And his name is INFLATION.

In the 90s, your 500 pesos can buy you a bag of goods and several kilos of rice from the grocery store. But now, you can just hand carry what you purchase with that amount. That’s inflation in action. It is what’s happening when the buying power of your money decreases by time affected by several factors of the economy. And most of the time, inflation beats the interest given by banks on your savings account. Meaning, if you don’t do anything with the money you keep in your bank accounts, you’re assured to lose money in the long run.

If you think that sitting on your savings account is a smart thing, then think again. Savings account is good for the sole reason that it is where you can put your contingency and emergency funds being the most liquid type of investment vehicle. Liquid means your money is accessible and ready for the taking any time the need to use it arises. So having a savings account is a necessity. But if you want to grow your financial wealth, putting all your money in it won’t help you that much. It might look less risky but the truth is it’s the surest way of losing your money without doing anything due to inflation. 

For us to understand it better, let's put in some numbers. 

The inflation rate in the Philippines as of this writing is 2.3%. Meaning, that's how much the value of money is lessened. How about the deposit rates? It's around 1 to 1.2%. At a glance, it's easy to see that you are losing your money to inflation compared to what your money earns in a savings account. So to make your money earn, you have to beat the inflation rate with a higher interest rate. 

There are finance companies or banks that provide options to invest part of your savings to other funds that can give you possible higher return rates than your usual savings interest (i.e. UITFs, EIPs, Bonds).  Though most have lock in period where you will be charged if take out your money earlier than the contract. There are also minimum amount for the initial investment on some of them. You can check it out at the banks, ask their employees, grab some leaflets or go to their websites to see your options.

Then there are also Mutual Funds like what we have with Sun Life Financial where you can start investing for as low as 5000 pesos and can add a subsequent minimum of 1000 pesos to your fund any time. You will also be able to choose the fund on where your money will be invested depending on your risk appetite. Then our professional fund managers will be the one taking care of it's growth. And you can pull out your money whenever you want it. 

And there are many other types of investment you can look at. What’s important now is you understand that inflation is a huge consideration when planning your finances and investments. You can’t ignore it because it is real and it will hurt you whether you are aware of its existence or not. No one can avoid it. But the good news is anyone, with the proper knowledge, can definitely beat inflation black and blue.