One of the easiest ways to improve in any aspect of life is to keep mistakes to a minimum.
For example, if you play tennis you should focus more on getting the ball over the net, rather than hitting winners. Most points are lost rather than won in amateur tennis.
And so it is with your money, and a whopper of a mistake most make is misunderstanding what money is. Most think of it as currency – something that has a value in and of itself – and that’s a sure-fire losing state of mind.
Money is in fact purchasing power. It’s what you can buy with the money that gives it its value. Money itself is worthless.
Therefore, one major aim of anything you do financially should be to preserve that purchasing power. That means defeating inflation, which is the ultimate stealth tax, as we shall see below.
Defeating inflation means you can buy at least as much tomorrow as you could have bought today. If that doesn’t happen, you are getting poorer.
THIS ARTICLE highlights that £100 put into a savings account in February 2009 is now worth only £84 today. That’s due to a combination of the eroding power of inflation and historically low interest rates.
If you could have bought 100 bananas for £100 in February 2009, today you can only afford 84. That’s 16 fewer bananas; you are that much poorer. And hungrier.
To confirm, if you had had all your money in savings for the last ten years, today you are 16% poorer. Cash savings aren’t the “safe” option so many think.
The tragedy is that hundreds of thousands of people are suffering in exactly this way. Far too many hold far too much of their wealth in cash. And year by year become poorer and poorer. They are giving money away hand over fist.
In another ten years, that £84 will become £70 and another ten years after that £60, assuming the same inflation and interest rate differences.
That 30-year span is how long you can expect to be retired. Do you really want to be 40% poorer at the end than the start? That’s before you’ve even taken account of the income you’ll need from your savings.
Once included, the picture looks even more dismal. You’re on course to run out of money while you’re still young.
So many people approaching retirement want certainty and so sign up for fixed interest returns that guarantee they will be poorer in only a few years and run out of money in later years.
Why would anyone sign up to that?
If you want an independent, dignified retirement then all you have to do is avoid this simple mistake.
future proofing your finances
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