economy · finance · savings

Don’t get mad; get informed.

1.24.19A little over a year ago, the penny dropped on the concept of “inflation.”  For several years now, I’d been able to save a little money each month and the number in my savings account was slowly rising a few pennies a month.  I’d had my money in my regular bank’s savings account and had considered that the “right” thing to do.

Then, I was walking in a park with J, and for reasons which are lost to time, he wound up explaining the following:

A cup of coffee that today costs one of my dollars will next year cost a dollar two.  But I will still only have the same thing called one dollar.  Meaning that conceptually, even if I save that dollar, I’ll only have 98cents where this year I have a whole dollar.

What this idea sent me into was a panic.

Because for more than five years, I’d diligently been siphoning off money every month into my savings account — but now realized that there was a hole in the bottom of that bucket called “inflation.”

No matter the fact that it was in a savings account (and yes, technically I was “saving”), that money was also leaking out a sieve with every moment it sat in a near-no-yield account.

I was appalled.  I literally dropped his hand, stopped walking in the middle of the path, and was aghast.  WHAT?!  Wait, what?!  Explain this again.

And he did.  And I didn’t move.  He eventually nudged me on as I felt the foundation of savings I’d been building crumple to sand beneath me.

If the price of everything goes up about 2% a year, but my dollar in the bank is not growing at that same rate, I am losing money. (sort of)

Nearly immediately, I researched savings accounts that could rival the rate of inflation and found Synchrony Bank and Marcus Savings, each of which now have savings rates of over 2%.  The 2018 rate of inflation (CPI, in this case) was 1.9%, meaning by putting my money in those savings accounts, they ARE actually earning money, which is what I had thought my savings account was doing in the first place!

I had imagined that by putting my money in a savings account, that each month those little additions of a dollar here and a dollar there were EARNINGS.  It turns out that, because they weren’t keeping up with the rate of inflation, they were not only NOT earnings, they were indicating a LOSS.

Forchrissake.

For years, I had felt self-esteem about saving every month.  Which is great, and well and good, and I continue to think that it is important.

However, with the penny, nickel, DOLLAR drop that I had last year, I realized that all of that hard earned money was actually a drain.

So, I suppose this is a cautionary tale about ignorance of the financial system — because understand it or not, like it or not, want to be in the “system” or not, I am a part of it.  And, I DO want to be in the system, because that can be where benefits are.  If there are options for me to increase (or at least HOLD) my teeny weeny wealth while I SLEEP, then I should do everything I can do to that.

And while I also later made other choices that increase that yield, starting with moving my savings to a sturdier bucket was a start.

 

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