You Are Losing Money Right Now

It's hard not to look at the news right now without seeing article after article about prices of everyday goods skyrocketing. Inflation has increased dramatically in the UK, with February showing an increase of 6.2%. This is something that should mean a lot to millions of people. If it doesn't, hopefully in this short article I can get people making easy decisions to minimise the negative effects of inflation.

Inflation in the most basic terms is a general rise in prices. This is normal in an economy to some extent, and a sign of growth. Inflation is measured by taking a broad selection of products and services that are commonly bought and measuring how much each has gone up or down in price over a period of time. The Consumer Price Index is commonly used to measure these rises as it takes an average price rise of commonly bought products.

But why is this important to people? Well, if goods and services becoming less affordable, we are becoming poorer in real terms. Perhaps your pay will increase to keep pace with prices, but if not, the money we hold certainly won’t go so far. For instance, let's say you have £100 in a current account with 0% interest that you will use for coffee throughout the year. Coffee currently costs £2.50 a cup, so you can get 40 cups. If you decided you'd save all that money and buy them 1 year later instead, due to inflation, let's say at 2%, a cup of coffee would then cost £2.55. Because of this, you would only be able to afford 39 cups! You still have £100, but now you will get less coffee. This is because inflation erodes the buying power of your money.

So, if you are not using and storing your money in a productive way, it is losing its value. Banks will offer interest on money you hold with them; this is because they can use your money while you have it stored to make money themselves. So, paying you interest encourages you to place your money with them as opposed to spending it or investing it elsewhere. I have always felt it is very important to try to find the best rate, as anything less than the rate of inflation means your money is still losing buying power. In times of low inflation this may not seem too much of an issue, but the effect of Covid, and other global events has sent prices rocketing, and there will still be many people with their money in very low interest savings accounts.

It is important to note that inflation can also work in your favour if you hold an asset that is going up in its price/value. Property is the obvious example of this, but other physical assets might be worth considering, or other investment types such as certain stocks may provide a good return in inflationary times.

Here are some things to consider to preserve the value of your savings:

• Moving banks: Doing this can allow you to access better interest rates or services as well as cash sign up bonuses. Switching banks is also super easy, with the new switch service takes very little effort!

• Invest in other things: Think about putting your money in stocks or other investments as these usually have higher returns than a bank account. Of course, this will depend on your personal circumstances and your attitude to risk, as the value of stock market investments can go down as well as up!

• Talk to a mortgage advisor: If you have a mortgage, as inflation rises, your mortgage payments will rise too, so you want to find the lowest rate possible. If you think inflation will keep rising or stay high, it might be worth trying to lock in a fixed rate deal for a longer period.

• Get paid more: It’s not easy to go and ask your boss for a raise, but with prices rising, now is the time to do it! Or maybe it is the moment to try and develop your own business on the side. More money often means fewer problems!

Hopefully this brief overview will cause you to think a bit about whether your money is working hard enough for you in the fight against inflation. For the foreseeable future the squeeze is on, so the sooner you act, the better!

As always, I’d love to know your thoughts, so please feel free to drop a comment.

Disclaimer

​I am not a financial advisor and opinions on any of the forums or blog posts are also not financial advice. Users should not rely upon this information to make financial decisions. All invested capital is at risk from fluctuating market trends. Refer to all terms and conditions of any credit, investment or banking account before submitting an application. If you have any doubts about anything stated on this site, you should seek advice from an independent financial advisor as I cannot give personalised financial advice.