I just checked my bank statement and I had been given $4.16 in interest for one month’s amount put into that account.  That account gets 5% interest yearly.  What’s inflation for a year?  The nationally published inflation rate is supposedly 3%, which means that you are making $30.00 less in dollar value per thousand dollars every year.  Sure, you will hopefully get raises that deal with inflation (and hopefully more) but you’ll also need to be looking to not spend or save that amount to get ahead of the game with any new income or at least get that money into an investing tool that makes up for it.  Practically speaking a five percent return on money that is losing value at three percent means that 1,000 will get you $1018.50 in value when all is said and done.  Rinse and repeat.

Looking at inflation like that helps explain why financial advisers are always talking about investments that make 10% or various other amounts: you can’t afford to retire on a 5% interest rate and have any losses!  Take a look at your investing strategy in light of your own practical inflation and see where you can shore up any losses and keep making progress - but don’t forget about inflation because its very real and it can be very costly!

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