Monthly Archives: May 2012

Battling Inflation

A key reason to invest your money is to battle against inflation.  If you are not investing your money, then Inflation is causing the value of your money to decrease over time.  Inflation is the increase in prices of goods or services over time. Here is an example dealing with the price of gasoline:

Lets say you go to fill up your car with gas and you have $50 on you.  This allows you to get 10 gallons at $5.00 a gallon.   One year later, you go to the same gas station with $50 and now gas is costing $5.25.  Now, you can only purchase 9.52 gallons of gas.  Your $50 is not as valuable as it was a year ago.  This is inflation.  The above example is a 5% inflation increase.

The General Rule for Inflation is that it increases 2-3% a year.  So, if your money is just sitting in a bank account you are actually losing money or the value of your money.  This is one of many reasons it is important to invest your money.  You want to, at the minimum, keep up with inflation, but you really want to beat the inflation rate with your investment returns.

Hope this helps and thanks for reading.