Due to the current economic crisis, many people have noticed low-interest rates in their savings accounts. Despite interest rates increasing for numerous bills and household essentials, they don’t seem to increase the interest rate for a savings account. That is why many people are looking for other ways to increase their wealth for the future.
If you want to save money or invest in stocks and shares, you must understand inflation and plan out your expenses.
Understanding Inflation
Inflation is when money loses its value and it is losing its value at a quick rate at the moment. In the UK, you could buy a loaf of bread for less than one pound. Now, it is usually around the cost of £1.20.
A pound coin could buy you a lot more 30 years ago than what it can do. However, this has affected things on a bigger scale as well. House prices are something else which have been affected by inflation. In the 70s, 80s, and 90s, people were able to buy their first home in their late teens/ early twenties. Now people can’t buy a house until their late 20s or early 30s.
What Does It All Mean To You?
It is essential to understand inflation, especially as it affects everything you buy. It is also important to remember your savings and investment accounts can also be affected by inflation.
Let’s say you have an investment account with an interest rate of 2%. A year later, you will have 2% more money in your bank account which sounds great however, that doesn’t mean you are 2% richer. If the interest rates are that high, it means you are not able to purchase the same items that you could buy at 1%. Basically, it defeats the purpose of a savings account and your money isn’t increasing or decreasing.
To become wealthier in the future, you need to find a system that beats inflation. An efficient way of beating inflation is with the stock market. Thanks to modern technology, it is easier to invest in the stock market by using our phones.
Is It Worth Investing To Counter Inflation?
The issue with investing is that you are essentially betting. You are betting on a stock to increase in value in the next 12 months. Nevertheless, the bigger the risk, the bigger the reward. However, that might not work for everyone.
People won’t want to invest in the stock market when they know they could lose money. That is why many people prefer to put it into a savings account. That way, their money is much safer and they are protected for up to £85,000 if anything goes wrong with the bank.
If you have long-term goals of owning a home by the time you reach 30, investing will get you there quicker. Savings accounts are great to a certain extent and are great for saving for short-term goals.
It is a decision you have to make in life. Do you want to save for ten years but know your money is safe or would you rather take the risk and potentially reach your financial goals in half the time?
Set Yourself Goals
Before you start to put money into a savings account or invest in stocks and shares, setting yourself financial goals is a better way to understand which is best for you. Do you want to buy a home in the next ten years? Would you like a new car on the driveway? Are you saving for a holiday? All of these things are important for choosing a savings account or investing.
If you want to own a home in the next five years, an investment account would be the better option. However, if you want to go on a holiday, we recommend you put your money into a savings account.
Can You Protect Yourself From Inflation?
In a savings account, there is no way to protect yourself from inflation. With an investment account, you can be confident that you are inflation-safe.
A savings account sometimes adjusts its interest rates to the current interest rate. However, sometimes they don’t meaning you could fall behind. The rule of thumb is not to put your money into a savings account for long-term goals because it could lose value.
How To Set Up An Investing Account
Setting up a savings account is very easy which is why many people have one. However, setting up an investment account is easy once you know how.
There are a couple of ways you can set up an investment account. The common method would be to open an investment account with a bank account however you can also set up an account with a regulated broker.
A good way to begin investing is by opening an account with Trading 212. It is great for those who want to invest their money with little to no experience. The reason why Trading 212 is good is that you can switch over to a practice account. That is where Trading 212 will give you £5,000 to practice with however it isn’t real money.
We advise you to open an account like Trading 212 before trading real money. There are many things to know about the stock market which is why a practice account is a good place to start. Once you get to grips with it and understand key terms, you can then move into trading real money.
Another tip for investing is to ensure you are in the right forums. Forums are great for getting insider knowledge on certain stocks which you can then invest in. However, you mustn’t believe everything you read. Read the information and then conduct your research to ensure it is correct.
Summary
A savings account is great, however, due to the current financial crisis, people are not seeing their money increase by that much. That is why many people are considering investing instead to achieve their long-term goals. Additionally, there are many financial tips to follow, you should just need to find the best suited to you.
Before you invest in the stock market, you must be aware that you could lose money on your investments. There are also many scams out there that could take thousands away from you. These include forex scams, stock market scams, crypto scams, and other investment scams. Before you invest, make sure you complete thorough research.
