We always heard people complaint about money not enough, the money is getting smaller and smaller, all items are getting more expensive, only increase price but never decrease and so on. Yes, this is fact and is the effect of Inflation.
Basically, inflation is a kind of phenomenon when the balance of supply and demand on the market reach to an imbalance situation, when the market demand for certain items, there will be a certain amount of supply to satisfy the demand. When come to the situation of demand more than supply, then the price of the certain items will be increased, and whoever pay higher can get the certain items, this situation will remain for certain period, then the price of the certain items will not decrease back to the original price.
We can always experience inflation in our daily life, for example the foods, public transport, petrol, toll and others, the price is almost increasing every year. You can think about it, a plate of Wan Tan Mee in 1978 was price RM0.50, but now 2012 we have to pay RM4.50 or more for a Wan Tan Mee. This means that Inflation eroded the purchasing power of money, inflation make our money devalued.
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Example 1: Today, a car with priced RM100,000, under the effect of Inflation of 5%, 20 years later, if want to buy exactly the same car, the car will be at priced RM265,329. For an example in real life, first national car in year 80’s was priced at about RM13,000, but now do you think RM13,000 can afford for a new national car?
Example 2: Today, if you put RM100,000 into a fixed deposit account, bank will pay you 3% interest annually, so after 20 years your money will become RM180,611. But when you take your RM180,611 to against Inflation of 5%, you only can buy items with total value of RM64,746.50, on the figure, you have gain RM80,611, but in fact you have lost the power of purchasing with RM35,253.50. However, if you want your money to have the power of purchasing as remain of RM100,000 after 20 years, then you need to have the figure of RM265,329 on the maturity after 20 years.
Example 3: Today, if you have RM100,000 cash, but you choose not to put into any banks, and choose to put in a very secret and safety place. After 20 years, unfortunately your RM100,000 cash can only buy items with value RM35,848 only, this is based on Inflation of 5%. Although you put in the safest place of the world, but Inflation will still steal the power of purchasing of your money with RM64,152.
Example 4: Today your children is 5 years old, currently the one year expenses of a University is around RM20,000 which is included the school fees, MISC fees, life expenses, transport, books and stationery fees, but when your children grow up to 20 years old, one year expenses of a University is no longer RM20,000, and is RM47,931 based on 6% of educational Inflation.
Example 5: A 30 years old man, currently one year life expenses need RM60,000, he plan to have RM1,500,000 on his retired age of 55 years old, and this RM1,500,000 can live him up to 80 years old. In fact, with the Inflation of 5%, when he is 55 years old, the RM1,500,000 is only worth RM416,084, and only can support him for 7 years on his retirement. If planning to against Inflation, then on age 55 he need to have RM5,079,532 only sufficient to live until 80 years old.
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CHOOSE THE RIGHT PLAN, MAKE YOUR MONEY MORE VALUABLE
