I came across this great article on "How To Limit The Effects of Inflation on Your Savings" by Connie Barker
"You have probably heard the proverb; there are only two certainties in life; death and taxes. While this is true, another certainty that should be added is inflation. Inflation is usually referred to as the worst tax around. Inflation however is not a tax, but the fact that your dollar is worth less and thus buys less. Inflation can affect almost anyone and can severely limit the buying potential and savings of an individual or family. Here are some tips to limit the effects of inflation on your savings.
One of the worst things that you can do is save money underneath your mattress. The reason being is not that a robber will always look underneath your mattress, but rather money that is not earning interest is exposed to inflation. Inflation can and usually does rise every year. For instance, 1% or even 3% rise in inflation can occur and does occur from time to time. This is the reason that prices go up and a dollar in 1970 bought much more than it does today. By saving money that doesn't earn interest, you are possibly losing several percentage points of its value each year. For instance, if inflation over the last 10 years totaled 10%, $100 saved in 1997 is still $100, but only has about $90 of its purchasing power.
In order to fight the effects of inflation, any money that you save should be invested. When you invest money, you earn interest. While no investment is 100% secure, saving money in a savings account, certificate of deposit or investing it in the stock market for the most part will grow your money. The more secure the investment, the lower the growth, but also the lower the risk.
Investing money is the best way to fight off the effects of inflation; however your money must grow a certain amount each year to beat inflation's effects. For instance, money in a Christmas club that earns less than 2% may actually have a negative effect on your money when inflation is factored in.
In order to beat inflation, choose financial tools that will more than likely beat the effects of inflations such as a certificate of deposit, bonds, money market, etc. Another important tip to beat inflation year after year is to choose investments where the interest rate is not fixed or where money can be easily turned into liquid and invested elsewhere. For instance, investing in stocks is usually a good choice due to the fact that a stock is not limited in its growth, where a bank account has a fixed rate of return. If there is a jump in inflation, over the amount of your fixed interest rate, you will actually be losing money."
Connie Barker is the owner of several financial websites including those dealing with Bad Credit Personal Loans
Article Source: http://EzineArticles.com/?expert=Connie_Barker
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