We often hear from our parents and grandparents that they used to buy movie tickets for Rs. 5. Milk that we used to buy for Rs. 13 few years back has doubled now. Have you ever thought why such change in price happens?
The answer is inflation.
You can’t AVOID inflation:
For the price increases to qualify as inflation, the rise in price has to be a sustained one. With time, for every rupee you own, you’d be able to buy a smaller percentage of good or service.
When inflation begins to march north, there tends to be a decline in the purchasing power of money. Let us consider the inflation stands at 5% annually. Theoretically, bottle of water costing Rs.20 today, would cost Rs. 21 in a year.
It is possible to control inflation and it is not possible to stop or avoid inflation.
How can you handle Inflation?
Inflation affects each person differently. As we progress in profitable positions in work, typically the amount we spend also begins to soar. While certain lifestyle changes with time are unavoidable, remember that every spending decision taken today can affect your finances of tomorrow. Read on to understand how we can combat the detrimental effects on inflation.
Handling Inflation During pre-retirement:
Inflation can be best handled with the right investments.
Pre-retirement investments and inflation:
Remember that it is not enough if your investment makes sense; it also needs to make cents!
Focus on what return your investment will yield post tax and invest wisely.
Inflation during Post-retirement:
“Inflation is the crabgrass in your savings.” -Robert Orben. Failing to anticipate the effects of inflation on retirement finances can be a costly mistake. While it is important to keep investing after retirement too, the tolerance to risk also needs to be phased down.
What we need to understand is that the investment strategy after retirement is not to beat the inflation with investments; but to meet the inflation with investments.
Inflation is what every economy suffers from. It creeps on us with time. If not planned, it can sting us very hard. But as economists say, inflation is nothing to dread. Healthy rate of inflation has a positive impact of increasing consumption and keeps the capital in the economy flowing.
An important Mantra:
Invest your money and don’t lock it up only with safe investments. The money safe in your ‘safe’ will not yield returns that can save you from inflation. For becoming a well disciplined investor and achieve your financial goals, you need to focus of creating a financial plan.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at firstname.lastname@example.org