Saving Money – The Cons

I came across an interesting thread in the forums that I found interesting. I especially found a link to an article called Lessons from the days of 13% inflation to be an interesting read.

While saving money is a good thing most of the time, it isn’t necessarily so during times of high inflation. This is because the value of the dollars you save will quickly lose their value and you’ll be able to buy much less for the same amount while holding onto them. The key here is to look at the return you can get for your money compared to the inflation rate (how much your money is devaluing).

For example, sticking all your savings in a local bank that’s paying less than 1% isn’t a smart move even today. While inflation isn’t in double digits, it is running higher than 1% so even when it looks like you’re gaining money, you really aren’t. That is why it makes sense to move your Emergency fund into a online bank that pays 3.5% or more.

While high inflation isn’t something that I see happening again in the near future, it is important to note that there are certain specific times when it doesn’t make much sense to save money or to pay down low interest debt (if inflation is in double digits and you have a house loan that is only charging 5%, paying the minimum and waiting to pay off that debt as long as possible will be in your best interest because you will be paying with dollars that have less value). This is just another little piece that you need to account for when looking at your personal finances that isn’t discussed much these days.

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2 Responses to Saving Money – The Cons

  1. Empty Spaces says:

    Actually the days of high single digit inflation are upon us. The fed has been consistently lying about the rate of inflation. they don’t consider housing or energy costs when calculating inflation. just useless stuff like food which is a fraction of our expenditure.

    As the dollar continues its slide[it maybe strengthening right now, but its is a temporary thing. wait till after christmas] & the Asian countries will be forced to revalue their currencies, the stuff we import from there will become a lot more expensive.

  2. billbob says:

    That doesn’t make sense. The main reason I-bonds are paying so well is due to the increase in gas prices (thus inflation) so energy costs are taken into account.

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