46. Should you worry about inflation? here is my simplest explanation why

 

Inflation is the increase in the price of goods and services.

• why should you be concerned if whether inflation goes up or down?
• YOU SHOULD IF YOU ARE SAVING MONEY!
• the money that you save today you will most probably spend in the future
• the amount of goods and services you can spend for in the future depends on its future price
• if the money you are saving today is not rising as fast as the increase in prices, you are losing money (in terms of its spending power)

Inflation is an investment risk that cannot be totally eliminated, it can only be minimized

it can be minimized by limiting the amount of your savings you keep in the losing asset (in this case, maybe a savings account), prudent rule of thumb is just keeping an amount equivalent to three to six months of your average family expenses

anything in excess is best diversified away (invest in other assets)

inflation over the short-term may not be a serious threat (anyway its just a few percentage)

but over the long-term it can compound to significant losses

the decision to save money may not be an easy decision for some of us, it can involve the making of "sacrifices" in the present to be able to set aside money for the future

I remember a young breadwinner telling me that in order for him to save, he gave up their weekly family bonding

this is quite hard for him as their weekly family outing is his only opportunity to have fun with his family as he is busy "making a living" during weekdays

to save money, he brings his family out to just once a month

don't let your sacrifices go to waste, protect the value of your savings! diversify, diversify, diversify!