Ask a person the reason for his investment, and chances are he will say it is for the sake of earning more. Yes, probably it is really one of his reasons. But what he might not know consciously is that by investing, he is also fighting the enemy of his money, which is inflation. Inflation is the increase in the prices of goods and commodities. Every year, we have what we call as an inflation rate. You know inflation rate is bad news because it decreases the purchasing power of your money, such that the difference between a 1 billion of today and a 1 billion ten years ago is night and day. Thus, as time passes by, the value of our money depreciates. In finance, it is called “time value of money.” Case in point: do you remember the cost of a bottle of coca-cola during the 1980’s? I don’t. But although I was not yet born at that time, I know for a fact that its price then is certainly different (literally decades apart different) compared to its price today. So now that you know the ugly part about the inflation rate, the next step is for you to recognize the relationship between inflation rate and your investment, then use it to your advantage. The rule of thumb is to invest in an asset that could provide you with an interest rate that is significantly higher than the inflation rate.
For instance, if this year’s inflation rate is 5%, then you ought to find an investment that will afford you with a return of 6% or higher. In so doing, the purchasing power of your money is maintained, in addition to the additional income you could have earned. Aside from knowing the inflation rate, you must also know how to manage and value your time. Remember, you cannot get rich after only a night’s sleep. You need time in order for your investments to flourish. The earlier you get started, the better chances for your money to grow. For example, people in their early 20s are already advised to invest in the stock market. The rationale behind this is that people at this age are usually single (therefore, fewer expenses); they are at the top of their game with lots of vigor and capacity to work (therefore, higher chances of earning more); and lastly, they still have a long way to go before retirement, giving them more time to ride the unpredictability of the stock market. Investing could be a tricky business, so what better way to protect your money than to educate yourself on the ins and outs of this matter