Is My Money Shrinking?

Brad Baker

June 23, 2012
Social Image Hanging Flag on Wall

Inflation is a funny thing. If you were to keep $100 under your mattress for 30 years. Then in 30 years, you would not be able to buy nearly as much as you can now with that same $100. That is because over time our economy inflates. Prices go up and so does our income. The dollar as we know it actually loses value over time and feels like money shrinking. This is known as the purchasing power of the dollar. I know you all heard stories from your grandparents about how gas used to be a nickel many years ago right? Well at that time the average pay was probably about $100 a week.

Inflation is hard to control as a government but you can fight inflation by placing your money somewhere that earns equivalent interest. Let’s say inflation is at 3% a year. If you place your money in a bank earning 2% a year then we are still losing money overtime just not as fast.

So you will want to place your money somewhere that earns the highest returns, whether this is a checking account, savings account or some other brokerage account. A good source to find the best rate is bankrate.com.

Money shrinking: Assume you place $200 a month under your mattress for 30 years. If inflation is 3% a year then you will have saved $72,000 but it will only buy what $47,256 could buy today. That means you have lost essentially $24,743 in today’s money. If you place your money in an investment earning equal to what inflation is then your PT savings = $24,743 in today’s money.