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I’ve become more interested in money and financial planning lately. The reason for this is because of a conversation that I had with a friend, who mentioned investing and how your money loses value because of inflation.

Oh dear, inflation. Economics and charts and *shudder* numbers.  Boring, right?

That’s been my general outlook on financial matters for a long, long time.  I admit I’m not very knowledgeable when it comes to finance.  I avoid it because of MATH, which caused most of my suffering throughout my academic life.  However, I’ll forgo the differences between math and I because of something my friend pointed out.  The truth about money that most of us (or at least, ignoramuses like me) aren’t aware of.  And that’s the existence of inflation.

According to Wikipedia (I never listened in class so yes, all of my knowledge comes from Wikipedia), inflation is “a rise in the general level of prices of goods and services in an economy for a period of time.”  Read on if you’re still interested.  (If not, click here for a beautiful photo of the salt flats in Bolivia.  At least you still get something out of this blog).

Inflation is the reason why a meal costing Php100 now will cost Php135+ after 10 years. It eats up the value of your money. Even keeping your money in a bank (specifically a savings deposit account like I do) won’t protect it from losing its value. Why?  Because the inflation rate is bigger than the interest your money gains in the bank.

Right now, the average inflation rate is 3%.  The most you could get out of interest from saving is a measly 0.250% to 1%.

Let’s say that by a great stroke of luck and awesomeness, you obtained Php10,000,000 and left it in the bank for a number of years.  You will still have Php10,000,000 in the future.  However the real value of this P10,000,000 will only be Php9,700,000 because prices have gone up (due to again, inflation), and your money has lost a value of Php300,000.

Holy freaking hell. That’s Php300,000 down the drain.

Sleeping with the Fishes photo sleepingwithfish.jpg

Your money sleeping with the fishes.

Okay, let’s redo that using more believable numbers.  Your Php 100,000 will only be worthe Php 97,000 in the future.  You waste Php3,000 just by letting it sleep in a savings account.

How do we safeguard our money from the thief called inflation?  Everyone tells me, make investments.  And that’s probably another topic I’ll write about.  Maybe when I’m bored and decide to write about trying to escape financial illiteracy.