Aug 2, 2013

Cory Diary : Horror of Inflation

Often we heard about people who strike lottery loses all their money after a while. Other than spending habits and not investment savvy, they are primary blind to inflation to understand how it works,

Here's a simple chart that tracks annual 4% inflation for a SAVER with $1M.


At 5th Year, a Saver will loses about $185K purchasing power !, if they just leave their $1M under the pillow.

For an average income earner who saves high say $30K annually with 50K annual income, all your saving goes into fighting inflation to keep your asset $1M at $1M at 5th year ! Unfortunately at 4% inflation speed, the effort is still futile.

From the Table above, REAL Net worth actually reduced after working for another 5 years.
This can be seen from the the last column when you loses 615% amount of your annual saving of $30K.

For a person who earns only $30K annually instead of saving, the outcome is much worst ....


Cory
2nd August 2013




2 comments:

  1. In other words, it is the effect of compounding working against us :)

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  2. Compound effect works well with savvy investment. Ironically at the back drop of inflation, money underneath pillow, reduction decrease with decreasing wealth for the wrong reason unfortunately.

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