If You’re Saving Your Money, You’re Losing Money… Daily!

How much money do you have in your savings account?

How long has it been sitting there?

Let’s say you have $10,000 in a savings account and it has been sitting there untouched for 10 years.

At the high-yield savings account interest rate of .85% that most banks offer, you would, 10 years later, have $10,886.84 in that account.

Okay, now stay with me because I’m about to show you something that will blow your mind.

In 2002, item A costs $10,000.

In 2012, the same item now costs $12,656.21.

It’s called inflation.

But WAIT, you only have $10,886.84 to spend. You can’t buy that same item today.

Essentially your money has LOST VALUE sitting in that account. It’s now effectively worth $1,800 less than when you started.


The point remains, if you’ve got funds sitting idle in the bank, you’re not saving; you’re losing.

So then maybe you say, well I’ve got long-term bonds that produce 4%, maybe 8% annually. Oh boy is that scary. I’ll tell you why. Bonds are the single most vulnerable asset class when it comes to protection against inflation. I’m not here to train you on bonds, but I do want to explain this.

Most bonds are issued with a fixed coupon rate. Say it’s 4%. What happens if inflation explodes to 12%? It’s happened before and with the Fed printing money and our national debt compounding like an unfettered bunny farm, hyperinflation is something we could very well see. With each passing year your purchasing power performs a Houdini vanishing act, never to return.

Before you get all, but MATT what do I do with my money then if I can’t put it in a savings account, bonds are risky, and I the stock market scares the bejeesus out of me? Take a deep breath; I don’t want any heads popping. There are ways to secure and grow your wealth even with the rise of inflation.

I have good, historically accurate, news for you.

Over the long term, real estate appreciation is inextricably tied to the general rate of inflation. Therefore, the value of your money when invested in real estate is actually preserved by inflation.

I hear you protesting, but MATT what about the crash? (that’ll be crashes if you’ve been around long enough)

What about the CRAZY 25% appreciation we saw before 2009?

What about the depreciating markets?

And I’ll say it’s true the appreciation of local markets can be higher or lower especially in the short-term, but the average appreciation of the country as a whole over the long-term, is tied to the general rate of inflation.

If you want to create real wealth, you’re in it for the long haul; remember that.

Let me show you some numbers, kay?

The Case-Schiller Index, which compares sales of the same homes, reports that between 1987 and 2009 the average price of houses saw an annual increase of 3.4%. The general rate of inflation over that period was 2.9%.

The US Census reports that from 1963 to 2008 the price of new homes per square foot increased 4.2%. We calculate by square footage because the size of residences exploded like a marshmallow in the microwave between 1950 and 2004. The general rate of inflation for that timeframe? 4.4%.

The National Association of Realtors found that, between 1968 and 2009, the price of existing homes increased 3.7% annually. The general rate of inflation was 4.5%.

inflationReal estate and inflation go together like Bert and Ernie.

Not only does real estate preserve the value of your money, but it also protects your income.

If you’re a landlord, when costs increase, so can rents (don’t invest in rent controlled areas, ok?) Regardless of the financial climate, people will always need a place to live.

Taking inflation into consideration when you’re looking at your financial health is critical, especially now. Inflation will continue to rise; to what extent we don’t know. But, no matter what happens, I want you to be prepared to sail through it.


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