Protect your savings from inflation

Protect your savings from inflation

Saving helps us to protect our standard of living, especially in situations of loss of income or possible reductions in income, such as during periods of unemployment or unforeseen increases in expenses. Saving also allows us to have access to assets that have a significant cost in relation to personal or family income without resorting to indebtedness.

Once you have a savings plan with a specific purpose, you must invest your money in order to obtain a profit, that is, a return on investment or profitability, which should allow your savings not to be devalued due to inflation, which is, roughly speaking, the increase in the cost of money.

At Empirex Capital we explain what this means: a rising inflation can make the price of money go up, therefore, the profit obtained from the investment made should at least allow you to maintain the purchasing power, that is to say that the amount of money accumulated at least allows you to buy the same as before you saved or invested it.

To give an example: imagine that you want to buy a car costing US$12,000 and you start saving US$500 a month for two years. Under these conditions, after one year you will have saved US$6,000, or 50% of the car. Now, let's suppose that during the first year there was a 10% inflation and the price of the car went up to US$13,200; you still have the same savings but they no longer represent 50%, but 45%. In short, your money was devalued relative to the value of your goal.

With inflation at levels we have not seen in the last thirty years, it is more important than ever to protect our savings from losing value. Also, now that the markets are in the doldrums due to the conflict in Ukraine, it may be a good time to get in on the cheap.

Therefore, you must have a strategy to protect your savings, otherwise, in a few years they will be worth half or even less. Here are some tips:

Don't invest in something you don't understand.

Try to match your investments to your risk profile.

Take into account the costs of the projects in which you invest.

Adapt your investments to the terms in which you will need money.

Take into account the taxation of the products you choose.

Mostly in the Hispanic world, there is an alternative approach on how to protect money against inflation. If inflation is the loss of value of a currency relative to the things we can buy with it, why not switch currencies?

Saving in more stable currencies can be a very interesting option to protect our money. In Argentina, for example, there are many families who have opted to diversify their savings and keep part of them in other currencies, especially dollars or euros.

Remember, to protect your savings in times of uncertainty and great economic changes there are no secrets. In essence, it is all about having patience, being prudent and having good judgment when deciding how much to save, for what purpose, what to invest in and how much you are willing to risk to achieve your goals.

Created on 7th Jul 2022