How Does Inflation Affects People?

In economics, it becomes a reasonable thing that the value of dollar would vary. Its value today will be different tomorrow. In this modern time, money losses its value as time goes by given the process of inflation. Taking inflation into consideration, the amount of money does not change, it only buys less through time. Inflation can be measured by the rise in the cost of goods as well as services. In addition, it is inflation that makes the things you buy more expensive, decreasing the value of your money. For instance, your one dollar could buy three oranges today, but tomorrow it might only buy two. Inflation does not change your money, it only changes what you can buy out of your money.

Inflation and It's Effects

Inflation takes place when the government adds more money to the economy for it o properly function. Basically, the government can have different ways of doing it yet the process is described generally as “printing money”. In order for the government to fund its own spending, they need to add money to the economy. This situation means that the government needs more money that what it gets from the people though taxes, thus they create new money to make up for the shortage. Due to this, inflation is created thus the value of money decreases in the economy. People may not realize that inflation is a hidden tax that they pay in the form of high prices. Inflation disproportionately affects people. If a person wants to get rich, he should be able to minimize inflation’s effect in his way of living. Given the fact that inflation decreases the value of money, one should to put into something that will have a greater return than the inflation rate in a country. This would include changes in the price of energy and food. Take the following as an example. If you have a money in the bank which pays 3% interest in a year, and the inflation rate in a year is 4.5% then your money is losing 1.5% buying power annually. If in case you invested your money with a 4.5% interest rate you will have a break even and the value of your money will remain the same. This may not be a path to getting rich but there can be a possibility that your money will grow.

Money, through time can be made at the same time lost. The amount of money that you have at hand can only work its best for you if invested at a rate which is higher than the inflation rate. Learning about the inflation rate in your country would help you invest accordingly. Many people find inflation as problem thus they never dare to risk what they have. However, as long as you know the mechanics of the game that you are in, there will be no worries and for sure that money at hand will do great wonders of managed and invested properly.

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