There you are, regularly socking away 20% of your pay into a savings account. The safest, and most reliable method to generate wealth. Right? Wrong!
Money loses its value over time, due to a concept known as inflation. In Australia, our inflation rate has been pretty consistent at around 2%. This means that your money has less value and can purchase less over time. That’s why your grandparents were able to buy a home for $20,000 and why it will cost you….$1,000,000. Okay, maybe more than inflation contributed to that.
The point is, if your savings are sitting in your bank account with a measly interest rate (like many of the big 4 banks offer), then you are losing money and purchasing power every single day. Check the interest rate of your current savings account right now. Is it less than 2%? That means a change should be made to stop further deterioration of your wealth.
The good news is that there are two key ways to counteract this.
- Transfer your savings to a bank account that offers an interest rate that beats, or at least matches inflation. As the Australian inflation rate is 2%, this should be the same for your bank account.
- Invest your savings. With investing, not only will you be beating inflation but your wealth will grow substantially. However, if you need your savings within the next few years or have a very low appetite for risk – I would stick to the savings account. I’ll delve deeper into the topic of investing in the couple of months so stay tuned if you’d like to know how to get started.