What is inflation and how to protect your money from losing value
💡 Quick Tip
Understand how inflation acts as an invisible tax devouring your savings monthly. Learn practical strategies to protect your purchasing power, invest safely, and make your money grow above price increases.
The invisible thief of your savings
Imagine hiding €10,000 under a mattress. After ten years, you still have exactly €10,000. However, at the supermarket, you discover that money buys much less food than a decade ago. That is inflation: the generalized rise in prices over time, meaning your money loses purchasing power daily.
Why the bank is not a safe haven
Leaving money idle in a 0% checking account is mathematically losing money. Central banks target 2% annual inflation. If your savings don't grow by at least 2% yearly, you are silently getting poorer. Protecting your money is a survival necessity.
Strategies to shield your wealth
Put your money to work in assets that historically appreciate faster than prices:
- High-yield accounts and deposits: If afraid to invest, look for accounts paying 2% or 3% annually. You won't get rich, but you tie inflation, protecting your emergency fund.
- Index funds and stocks: Companies raise prices during inflation. Buying global stock index funds lets you benefit from growing corporate profits, historically yielding 7% annually.
- Real estate: Housing and rent prices tend to rise with inflation, protecting invested capital.
The golden rule
Keep only daily spending money and an emergency fund (6 months expenses) in cash. Every euro above that must be invested to escape inflation.
📊 Practical Example
Practical example with real numbers
You have €5,000 saved. Average inflation is 3% annually.
- If left in a checking account: In 10 years, you still see €5,000, but its real purchasing power will equal about €3,680 today. You "lost" over €1,300 in buying power.
- If invested (e.g., Index Fund at 7%): Your money outpaces inflation. In 10 years, you will have about €9,800.
Subtracting the 3% inflation effect, your real purchasing power increased. You not only protected your initial €5,000 but gained real money for your future.
