One of the common financial advice I am always hearing while growing up from my parents and from other adults was to save money.
As you see, a lot of young adults in our community spend all their extra earnings on unnecessary celebrations, parties and vices like there was no tomorrow. And then when time comes where they get seriously sick or if they plan on settling down, they and their family would be at loss where to get the money to spend. It may be too late but it makes them wonder that it could have been better if they only had put aside some savings in the past.
With this in consideration, saving money seems the perfect financial advice for anyone. However, I soon discovered that while saving your hard earned money is far better than not saving at all, it actually puts you at a great financial disadvantage. The longer that you save your money, the more you lose it.
Inflation
I am sure that you’ve already experienced this. Prices of goods gets higher and higher over time. This is called inflation.
One constant cause of inflation is the banks printing more and more money all year round. The more money there is in circulation, the less value each penny has - this is the law of supply and demand.
It is not all about the goods getting expensive but also the money getting less valuable.
According to the Federal Reserve, the acceptable inflation should be around 2 percent or even lower. For example, the Philippines in 2021 had an inflation rate of 3.93% while the United States had 4.7%. You can find more details about the Philippines here and for the United States here.
This means that for the Philippines, if we saved 1,000.00 PHP (around 20 USD) at the start of the year 2021, it would have an equivalent value of 960.7 PHP (around 19.214 USD) at the end of the year. It lost 39.3 PHP of its value just by doing nothing.
Of course, we will still have 1,000.00 PHP at the end of the year but we will be needing additional 39.3 PHP to buy the same item or product it can buy a year ago.
For comparison purposes, from the same source, I’ve made a table comparing the countries that interested me. If your country is not included in here or if you are interested in another country not listed in here, you can check it out from my original source.
| Country | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| United States | 4.7% | 1.23% | 1.81% | 2.44% |
| Canada | 3.4% | 0.72% | 1.95% | 2.27% |
| Philippines | 3.93% | 2.39% | 2.39% | 5.31% |
| Central African Republic | 4.26% | 1.71% | 2.69% | 1.61% |
| South Africa | 4.61% | 3.21% | 4.12% | 4.52% |
| Venezuela | - | 2,959.8% | 9,585.5% | 130,060.2% |
| Cambodia | 2.92% | 2.94% | 1.94% | 2.46% |
| South Korea | 2.5% | 0.54% | 0.38% | 1.48% |
| China | 0.98% | 2.42% | 2.9% | 2.07% |
| Japan | -0.23% | -0.02% | 0.47% | 0.99% |
| India | 5.13% | 6.62% | 3.73% | 3.94% |
This data indicates that Japan has the least inflation while Venezuela has the highest inflation rate. I wonder what is happening to Venezuela for the past years until now to have that very high inflation rate.
Bank Savings
As we can see by now, inflation takes away the value of our hard earned money. And one of the traditional ways we can at least counter inflation is to save it on banks where we can earn interest from it.
Let’s see how much the top 3 banks in my country, the Philippines, has to offer:
| Bank | Savings (Interest per year) | Time Deposits (Interests per year) |
|---|---|---|
| BDO | 0.0625% | 0.125% ~ 0.5% |
| Land Bank | 0.05% | 0.05% ~ 0.15% |
| BPI | 0.0625% ~ 0.125% | 0.13% ~ 2.0% |
Ouch! The data hurts.
These interest rates cannot even cover the inflation rate. The 2 percent interest rate from BPI maybe be the highest but it requires a big amount of money to be locked on a time deposit.
Also, take note, for the sake of this discussion, that these interest are released yearly and are compounded yearly.
Business
Putting our money into a business will not just allow us preserve the value of our money but it also provide us the opportunity to grow it significantly. So far, minding our own business is the fastest way to grow our money. Considering of course, that the business would be a success.
One downside of starting a business is that it requires most of our time. This is a problem if we have other important things to do, like a regular job, that we are not willing to give up. However, there is the option of entrusting the growth of the business to someone else if we’re okay with it.
Note that starting a business does not guarantee any success.
Investing
Investing is another additional or alternative option aside from starting a business that we can opt into. The return may not be that high as minding our own business but it is still pretty high that we can still earn significant amount from it.
Investing is money working for money. Unlike owning a business, investing does not take a significant amount of your time and you can still do your regular job.
One of the most popular investment that I often hear about is the S&P 500 Index fund. An index fund is great for those who are new into the world of investing. It is considered low risk with a compounded average annual growth rate of 10.7% per year.
Note that investment does not guarantee a return and you may end up losing your hard earned money.
HBD Savings
The introduction of the blockchain technology opened a lot of possibilities that was never before possible. To name a few, some of these are decentralization, play-to-earn games and of course, cryptocurrency.
The topic of blockchain and cryptocurrency is broad that I cannot even scratch the surface here. However, I want to introduce to you our HBD savings. HBD is the stable coin of the Hive blockchain, that when placed on savings would return 20% interest per year, at the time of writing.
What makes HBD savings interesting is that, the returns can be claimed monthly and can also be compounded monthly. This makes it more attractive than most investments where the returns are released and can only be compounded yearly.
If you don’t have a Hive account yet and interested to join our community, you can signup for free using my referral link here.
Alternatively you can also go directly here or through the LeoFinance frontend.
Conclusion
Saving is far better than not saving at all, however this does not protect our hard earned money from becoming less valuable overtime due to inflation.
To fight off against inflation, we must grow our wealth. And we can grow our wealth through one or more of the following: Investing, minding our business and or HBD Savings.
An important note, however, is that before planning any investing, we should first save for our emergency fund.
Thank you for taking your valuable time reading this article of mine.
Kindly drop your thoughts on the comments below.
Again, thank you and have a great day ahead. :)
DISCLAIMER:
This is not a financial advice.
Please carefully do your own research.
Attributions:
Thumbnail images Photo by Josh Appel on Unsplash and Photo by micheile dot com on Unsplash
1st (inflation) image divider Photo by Roberto Carlos Román Don on Unsplash
2nd (bank) image divider Photo by Etienne Martin on Unsplash
3rd (business) image divider Photo by Firmbee.com on Unsplash
4th (investing) image divider Photo by Visual Karsa on Unsplash
Hive logo by Hive
Cartel banner by the OneUp Cartel