From an early age, we’re taught the importance of saving money. Whether a rainy day fund, college tuition, retirement or to generally defend against the unexpected things in life, saving is a necessary part of being financially resilient. And yet, there are very few conversations about how we save and the risks that come with traditional modes of saving.
For example, in the COVID-19 crisis, Americans have saved an extra $1.3 trillion; no doubt the majority of which is stored in banks as a fiat or paper currency (the U.S. dollar). But at a time when inflation rates are gradually increasing and people need stable savings more than ever, this approach can actually have a negative effect on the value of people’s savings.
Here are four questions to understand how inflation impacts your savings:
What is inflation?
According to the United States Department of Labor, Bureau of Statistics, a loaf of white bread in 1988 cost 59 cents, while in 2013 it cost $1.42. That means that over twenty-five years, the cost of bread went up by 140 percent. Fast-forward to today, and consumer prices in June saw the greatest rise in nearly eight years, causing the U.S. Federal Reserve to announce that they will allow inflation to exceed above the standard average.
Inflation is an ongoing process for fiat currencies because central banks and governments control the money supply and can print more of it at whim. For instance, to alleviate the stresses of the pandemic, the Federal Reserve is predicted to have created the equivalent of $3.5 trillion. The problem though is that having more money in circulation forces the price of goods to go up as demand is higher, while also lowering the dollar’s purchasing power – this is inflation.
How does inflation affect my savings?
Let’s say that you put aside $100 in a savings account. You earn 1 percent interest annually, so you net $101 total at the end of the year. However, the rate of inflation is 3 percent, so you need to have $103 to be able to afford the same things that $100 once bought you. This difference can quickly add up as you deposit more money into the account and inflation fluctuates.
Put simply, if your savings and the inflation don’t grow at the same rate, you end up losing money.
If you’re saving for a specific goal, inflation is a constant cap on the money you contribute. Meanwhile, if you depend on your savings to live, inflation essentially lowers your standard of living as time passes because expenses like medical bills, food, and gas are constantly getting higher.
How do I measure inflation?
It’s important to note that every country undergoes natural inflation (within fiat-based systems), and The Federal Reserve states that a healthy inflation rate sits at 2 percent. The government publishes monthly inflation rates on The Consumer Price Index, which tracks a broad spectrum of goods and services and how much they cost. The higher the number, the greater the impact on your savings.
How can I protect my savings?
You don’t have to feel trapped in the economic system – there are other options to save and make smart financial decisions outside of fiat currencies. One of the ways to save is with gold – a tangible material that holds intrinsic value, has stood the test of time, and isn’t altered by inflation. Even better, because gold is seen as a safe haven, it can go up in price as fiat currencies depreciate: exactly what happened this year when gold hit an all-time high price while fiat currencies depreciated.
Saving in gold could not only mean that you’re protected against inflation, but also that there’s the possibility the value of your savings will go up.
Gold was one of the first forms of money to ever exist, and today it can be purchased in various ways: directly as bullion (physical gold bars and coins) or indirectly as gold-backed ETFs and gold mining stocks. Alternatively, you can exchange U.S. dollars for gold through the CORO app – simply select the amount you want to buy and make a secure transaction. You then have complete transparency about your gold’s value via the app, while the physical gold is stored in a secure vault with an independent gold custodian.
It’s time to get smart about saving. Within the current ‘fiat-based’ financial system, putting paper money into an account every month is not effective, and you deserve to have your money last as long as possible. Take back control of your finances and make sure that your savings aren’t subjected to deterioration by inflation.