If you’re a diligent saver, you want to feel financially protected against an uncertain future. Yet despite recent interest rate rises, high inflation continues to create economic uncertainty.
So, what is inflation, and what can you do to reduce its impact on your money? Inflation is the increase in the price of something over time. For example, you may have noticed your weekly shop has gone up and it costs you more to fill your car. Let's say inflation averages 6% over the next year. That means what costs you K1,000 today would cost you K1,060 in 2025.
In the 12 months to September 2024, inflation rose by 15.5% in Zambia.
So, what can you do to reduce its impact on your money?
Interest rates are set by Central Banks to help steady the economy and control inflation. While this may have a positive effect on your savings, it also means the cost of borrowing on credit cards, loans or mortgages may go up. It’s a delicate balancing act to keep the economy growing and inflation under control.
For savers, the benefits of any rise in interest rates could be marginal. When inflation is taken into account, it may take a long time for rising interest rates to offer any real ‘bang for your buck’ on savings accounts.
Investing your money over the medium to long term could give it a chance to potentially grow. That’s because investments – such as funds, shares, bonds, and other assets – could increase in value over time compared to simply keeping your money in a savings account.
However, there are no guarantees, and you could get back less than you invest. Ideally, you should be prepared to invest for at least 5 years to give your money a chance to recover from any short-term dips in the market.
It’s good if possible to have an emergency fund of between three to six months' expenses saved and easily accessible before you start investing. This way, if you get hit with any unexpected costs, you won’t have to dip into your investment to cover them.
If you’re trying to decide between saving and investing, think about what you’re saving for. Is it something specific, like a house deposit, a new car, or a holiday?
If you think you’ll need the money within five years, a savings account may still be the best option because you’ll know that – inflation aside – the value of your money can’t fall.
If you don’t think you’ll need to access your money for at least five years – whether you’re saving for something specific like children’s school fees, retirement, or just to have more options with your finances – it might be worth considering investing.
Key takeaway: If you already have an emergency fund and are comfortable taking some risk, investing your money could give it a chance to grow over the long term.
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