Inflation is eating your savings! Here's how to beat it
What's the story
In the modern world of hustle, it is important to stay on top of your finances, particularly when it comes to lifestyle inflation and growing your investments.
In India, PPF (Public Provident Fund) and FDs (Fixed Deposits) are two of the most common instruments people invest in.
This article analyzes how beneficial these options are in the wake of increasing expenses, providing valuable insights for making smart financial choices.
Inflation impact
Understanding lifestyle inflation
Lifestyle inflation happens when your spending rises along with your income.
This can create a cycle where, despite higher earnings, your savings don't seem to grow.
For instance, if your salary increases by 10% but you see a 15% rise in expenses, you're saving less.
Striking a balance between lifestyle upgrades and investments (think Public Provident Fund or fixed deposits) is key to financial health.
Long-term growth
The PPF advantage
At 7-8%, the PPF rate is significantly higher than most FD rates and the interest earned is tax-free.
Thanks to the power of compounding over its long tenure of 15 years, PPF is a great choice for individuals seeking significant growth in their investments.
For instance, by investing ₹150,000 annually in PPF, your money can grow to over ₹40 lakh in 15 years at the current rate of 7.1%.
Stability offered
Fixed deposits: Safety first
Fixed Deposits are deemed the safest investment option in India.
With FDs providing interest rates between 5% and 7% (based on tenure and bank), they ensure a steady and guaranteed return on investment.
This stability makes FDs highly attractive for risk-averse individuals who value the certainty of knowing exactly what they will gain from their investments.
Strategy matters
Balancing act: PPF vs FD
The choice between PPF and FD depends on your financial objectives, risk appetite, and investment horizon.
PPF is ideal for individuals looking for long-term capital appreciation with the benefit of tax savings.
On the other hand, FDs are attractive for investors who want quick liquidity and short-term commitments without being subjected to market risks.
It's important to carefully assess your financial requirements before making a decision.
Smart planning
Mitigating lifestyle inflation
A clever tactic against lifestyle inflation is to automate a portion of your salary into PPF or FD as soon as it hits your account.
By committing a fixed sum or percentage to these investments every month, you guarantee the growth of savings, even with increased expenditure.
Plus, reviewing financial goals yearly gives you the opportunity to make adjustments according to changes in income or financial objectives.