Savings and Inflation! 

Now you have saved up money by being disciplined. But do you know your saved money is constantly loosing its value i.e. purchasing power. This is due to inflation, prices of things going up. Let us say in 2022 one kg of onions cost Rs 100 average price. The following year the average price of onions has increased to Rs 105. There are two ways to view this price increase, one way is as elaborated above. Other way is to view value of one kg of onion constant and that Rs 100 do not have the same value as previous year. To purchase things of same value as last year we need 5% more money hence the purchasing power on money has reduced.

This erosion of purchasing power of money is perpetual at the rate of inflation. All the savers need to protect their savings from this erosion of value to protect the purchasing power of money. 

That is why one needs to invest money and not just let it sit in bank accounts. We need investments which beat inflation or at least give as much returns. Even if you constantly save but do not generate enough returns on your savings to beat the inflation your savings will keep loosing their value. You may be left with money that has less purchasing power than you initially saved.  

To generate these returns one can invest in a variety of options like real estate, debt instruments, equity markets etc. For low risk investor PPF and bank FDs are a good option.  Another factor to keep in mind is taxation of the income you generate from your savings. FDs may give higher returns than PPF but are taxed, equities generally are taxed at lower rates. It is important to save but it is equally important to invest to protect your savings against inflation.