Why your money loses value when you save it in cash.

Why your money loses value when you save it in cash.

One of the realities of life is that as life progresses, we eventually approach our stationary phase characterized by optimum productivity in terms of business, career, talent and every other activity undertaken towards daily upkeep, financial freedom and sustenance.

Beyond that however the decline phase beckons where energy is gradually sapped out of our bodies, our employees dish out early retirement notices and sometimes the zeal and vigour that once ran our business/firms is no more. One-word screams-Retirement and one of the best cushion against such shocks is this is consistently setting aside a certain sum of money for such a time as that.

“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”

T.T. Munger

With money saved, one could easily run a retirement business, take vacations, cater for children’s education and meet other post-retirement needs. It is therefore important to kick start your savings journey as early as yesterday – no matter how meager the earnings are.

Having established the significance of prioritizing allocation made to savings, we need to consider the ‘how’ of saving money. Money is more valuable when it can be saved and at the same time earn consistent and guaranteed interest as opposed to setting it aside as non-interest-earning cash due to factors such as inflation, interest rates, cost of savings, the safety of funds among others. One of the factors to consider is inflation.

Inflation vs Savings

Inflation in economics is defined as a sustained increase in the general price level of goods and services in an economy over a period of time. Inflation thus decreases the value of a shilling over time-and thus reduced the purchasing power of each unit of currency. This factor is further explained by the concept of the time value of money that suggests money available to you today will be worth more than the same amount of money at a future date.

In a nutshell, the higher the inflation (negative), the higher the risk of having ‘depreciating savings’ in your bank account or wherever the money is stored up.

Saving in cash, low-interest banks devalue the value of the funds due to negative inflation. The remedy in place is countering the effects of inflation, by ensuring the funds are saved in funds or financial instruments guaranteeing interest rates higher than inflation rates.

With rapid technology invasion and increase in access to Savings and investment education, it’s imperative to move away from traditional ways of saving-such as locking cash in the house safe, loaning out money and low interest-earning savings accounts and embrace the high-interest savings & investments opportunities available in the market.

One of the easiest, safest and convenient ways to save money is investing in treasury bills, government bonds, money market funds, and bank deposits among others. Nonetheless, risk factors should be considered such as fund regulation, historical performance, corporate governance, and company financials.

Investing in the Money market funds is one of the safest, reliable and convenient ways to save. With high rates of between 5%-11%, your investments will not only be safely tucked away but also grow and multiply over time. Always remember it’s never too early to start saving.

“A simple fact that is hard to learn is that the time to save money is when you have some”

Joe Moore

This article was written by Abel Kemei, Chief Risk Officer at Vasili Africa.

Get in touch with Abel for free investment advice via info@vasiliafrica.com or fill in your details below.


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