The Two Frugals

Inspired by Miriam Quiambao's Jars

Effects of Inflation

One reason why you need to invest your money and to be frugal is because inflation can eat the value of your money if you will just hide it on your piggy bank or deposit it in  your bank’s saving account. Inflation happens when there is a rise in  prices and reduces the value of money in your pocket.

Do you still remember how much can you buy with your 500 pesos in 1998?

effects of inflation

photo credit to Jamich fb page

Being frugal can help you save money. While cash and other highly liquid assets like savings deposit accounts are often considered to be the safest places to put your money, the impact of inflation can quickly decrease the purchasing power of your money.

According to Trading Economics “Philippines annual inflation rate accelerated to 4.5 percent in May of 2014 from 4.1 percent in the previous month, driven by higher food, utilities and housing costs. It is the highest rate in thirty months, approaching the upper bound of the central bank’s target range 3 to 5 percent.”

So if you want to protect your savings from inflation, you should seek out competitive interest rates that can help you protect the purchasing power of your money. Bank usually offers around 1% interest rate per annum for saving account and around 2% interest rate per annum. Putting your money in savings account or time deposit cant shield your money from inflation. One way to beat inflation is by investing your money to investments which offer interest rates above the current rate of inflation like Mutual Fund, UITFs or you can invest your money in Stocks or other investments that can offer you higher rates than inflation.

 

About the Author

I am currently employed in an IT Firm in Makati and trying to be a true frugal pinoy. Lately, I've been very amused on learning stocks and other investment products such as mutual funds, UITF and the like. I also started saving money for my emergency fund and my investment portfolio includes the following: mutual fund, forex and P2P lending.

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