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Inflation is a nasty truth that everyone must face. If you look back at the trend of money in this country, inflation happens regularly. Sometimes it’s a major spike but most of the time it’s a small increase. Either way, you know that your money will possibly lose value almost every year. That’s why it’s important to protect your hard-earned money from inflation. Here are three ways to do that.
If you’re saving for retirement and you plan to be saving for the long-term, investing your money is a great way to protect against inflation. The reason for this is that, while the costs of products are rising, so are the value of the companies that sell them. If you invest in stocks, inflation will be working in your favor. The key to investing is to invest in the right stocks. If you choose the right stocks, your investment will continue to grow no matter what inflation looks like in the future.
Open a Savings Account
Rather than having a store of cash savings under your mattress, you should save money in a savings account where you can collect interest. Over time, cash will lose its value due to inflation. For example, if the average annual inflation rate is three percent, then $100 will only be worth $85.87 in five years and as little as $63.32 in fifteen years. However, if you save that money in an interest-bearing savings account, your money will inflate right along with the prices. Make sure you get the best interest rate possible. Online banks often offer higher savings rates than large brick-and-mortar banks.
Avoid Long-Term CDs and Bonds
As discussed above, cash money loses its value over time due to inflation. When you buy a CD or a bond, you’re essentially making an investment in the value of cash. When it’s time to cash in that CD or bond, you’re going to get the value of the money at the time of cashing it in, not the value at the time that you invested. With this in mind, it’s easy to see how inflation does not work well with CDs and bonds.
Unfortunately, inflation is something that you can always look forward to. However, if you set yourself up properly, you can be on the winning end of inflation. Use the three tips above to get ahead of the game. When prices start to rise, you’ll be glad you were prepared.
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