INFLATION: What is it and how to beat it?

inflation

 

This is one of the hottest topics which welcomed the “BER” months. Media outlets have it intensified as one of the breaking news ever as we reach another high in Duterte regime. But, what really is inflation and what is, common Pinoy like us, need to know about inflation?

 

“Nung panahon namin, singkwenta centavos lang ang pamasahe papuntang skwelahan”, our parents always tell us. They scold us how lucky we were as everything is spoon-fed and instant nowadays, how expensive our fares are, how costly our tuition was, and how a Php 1,000 bill can only afford penny items at the nearest wet market at the current year. Oh well, not our fault, right? 🙂

 

MEET INFLATION

 

Okay, I still remember the time when a Jollibee Yum burger only costs Php 15, now it’s already freaking Php 28. In a span of more or less 20 years, that’s the increase of it’s price! Pano nangyari to? Well, it’s because of inflation.

INFLATION is the rate by which the general level of price of goods and services increase.

The computation is based from Consumer Price Index (CPI) which measures the average price of the standard basket of goods and services consumed by the household: food products, electricity, gas, and clothing.

As inflation rises, the value of the PESO becomes lower, as people are able to buy less products and services for the same amount. In simple terms, this 2018, if you can buy a chicken meal today for Php 100, chances are, that same meal might cause more than that by the time 2020 comes.

 

INFLATION IS INEVITABLE BUT WE CAN BEAT IT

Whatever we do, we cannot get rid of inflation as it’s a normal phenomena. What we can only do is beat it! What are the ways to ride with inflation?

Financial advisors always recommend investing into higher earning funds. Why is that? These funds have higher rates compared to inflation, it goes well with its wave, a big chance of earning more and beating inflation.

There are funds which have the potential to beat inflation – mutual fund, UITF, Stocks, VUL!

Just a recommendation – DO NOT put much savings in banks as they only offer 0.25-2.5% annual interest rate. And that is wayyyyyy lower than the inflation rate. Lugi ka in the end.

A. SAVINGS

Suppose you have saved Php 120,000 since 2013. To fight inflation, you have decided to put your money in a bank’s savings account. Now, let’s do the math:

What does this mean?

  • Good News: If you’ve saved your Php 120,000 in 2013 and never withdrew any amount ever, your money will be Php 123,033.98 at the end of 10 years.
  • Not-So-Good News: Your Php 120,000 has a new purchasing power after 10 years. How much? It can only purchase Php 86,683.18 worth of goods and services.
  • Have you surpassed inflation? No. When Year 2022 comes, your money has lost its purchasing power Php 26,742.85 due to inflation.

 

B. INVEST 

And now supposing that instead of putting your money in the bank, you have it invested in a mutual fund. Let’s see how it goes:

WHAT IS MUTUAL FUND

 

What does this mean?

  • Good News: If you’ve saved your Php 120,000 in 2013 and never withdrew any amount ever, your money has now grown to Php 335,850.82 at the end of 10 years.
  • Yet another good news: While your original Php 120,000 still has a purchasing power of Php 86,683.18 by year 2022, you’ll still be Php 173,366.00 richer since your income from mutual fund investment is much greater than the effect of inflation.
  • Have you surpassed inflation? Way beyond! Php 202,842 is your gain while Php 29,476.82 is your loss due to inflation.

 

FINAL THOUGHTS

 

Inflation is part of our daily lives, there’s no doubt about it. Everyone is affected as we consume basic goods and services. Though we cannot control it, we can ride with it and beat it through investing. “Do not put your eggs in one basket”, they say, so invest to different mediums as long as you can.

 

 

SOURCES:

https://www.sunlife.com.ph/PH/Investments/Bright+Ideas/Inflation+What+is+it+and+how+to+beat+it?vgnLocale=en_CA

http://www.gmanetwork.com/news/money/economy/666756/what-is-inflation-what-causes-it-how-does-it-affect-us/story/ 

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