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How Inflation Eats Up Your Money?

Did you know that 50 years ago, a small coke was priced at 5 paise only? Yeah, you heard it right! There were tons of other things that were priced lower during those days but now cost more. Ask your parents and you will get amazing stories to listen to. The reason why things became expensive leads us to the reason that money loses its value over time. In fact, the value of  ₹1.20 in 1958 is equal to ₹100 in the present day! 

Why does it happen?

The answer is fairly simple: Inflation. Inflation is the increase in general price levels of commodities in the economy. It leads to higher prices for almost all the goods that you buy. You can say prices of products are increasing OR the real value of money is decreasing. Both are correct. Be it cars, homes, bread or butter, due to inflation, you will have to shell more money from your pockets to buy the same goods.

So Why Do Prices Rise? 

Due to the increase in prices, the real value of the money and its purchasing power reduces. 

But why does it happen anyway?

There can be several reasons:

  • Due to more demand and less supply of products, prices tend to rise (like how it happened Post- COVID). 
  • Due to the rise in prices of input goods, their final prices rise as well. Like, if the flour/fuel/wages become expensive, biscuit manufacturers will sell products at a higher price. It’s that simple. 

But what’s the sole reason that triggers it all? The printing of currency.  Central Banks across the globe print money to control money supply and inflation. When they increase the money supply in the economy, it leads to more currency units going for the same products. 

More money supply ➡️More demand for goods ➡️ Less supply of goods ➡️ Prices rise.

Inflation: How will it impact you?

How Inflation Eats Up Your Money?

Now let’s see how inflation affects us. Let’s understand this with the help of Disha, a 20 y/o student. Suppose Disha saves ₹1000 in her savings account with an interest rate of 3% today.  By next year, she will have ₹1030 in her bank account.

Now imagine there’s a product that Disha buys today @ ₹1000. If the current inflation rate is 7%, the price she will have to pay for the same product next year will be ₹1070. Did you just see what happened here? 

Due to the inflation being higher than the investment return, Disha lost some money. 

Are you any different from Disha? Nope. 

How to save yourself from Inflation?

If your salary/wage is increasing at the same rate as inflation, rest assured! But if it doesn’t, you may need other methods to counter inflation. The high inflation rate leads to a bad time for savings & investment. Since you end up spending more while your income is the same, you are left with fewer savings and thus less money to invest monthly. Methods like investing in riskier assets like stocks may be the only option for you to earn more.

But that doesn’t seem logical. Or does it?  You tell us. 

At Zerobalance, we understand how dearest money is to you and bring to you, the solution to spend confidently. With us, you take full control of your money by budgeting before spending. Take these habits to frame the personalised financial strategy that keeps you ahead in the journey. 

Cheers! 

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