You can poorer even after getting a pay raise

Every person working in a 9-5 job works hard to get a pay rise and thinks that by saving enough one day he will be able to afford his dream car or his dream home. But there is a problem – INFLATION. We all have heard what it is. Some of us even have the idea what inflation is and to them it is the cause due to which the price of things increases. Generally, this is true in one sense but actually what happens is that the price of the things didn’t increase, instead the value of your money decreased. Let us take an example say in the year 2007 you used to buy a single apple for 1 dollar and in the year 2017 you have to spend 1.5 dollars to buy the same apple.

            Normal logic would dictate that the price of things has increased and this can be true e.g. a farmer may use different expensive fertilisers and this increased the price of the apple but for our case let us assume everything was kept the same and still we notice an increase in price due to inflation.

            We can see inflation in a different light where if every factor contributing to the determination of price of the apple is kept constant then we can say that the value of my money decreased or the dollar in 2007 is unable to give me the same value in 2015. Thus even if you save money in a savings account and get a pay raise, until and unless it beats the inflation rate of the country it does not make much of a difference. Countries like India have high inflation rate and this increases living cost in cities. Thus only saving won’t make us rich. We have to start thinking of investing our money and having a passive income source so that we get less affected by inflation.

But the question that still remains is that how does this happen? How can the value of money decrease? How is money created? What is currency? Who controls the money?

            I will try to answer these questions along with some other questions in a series of blogs and keep an eye on my website to know about interesting things around us.

 

 

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