How Inflation Impacts Your Daily Finances

Impact On Cost of Living

Higher Cost of Living

You must have noticed the increase in fuel, food, and utilities. This is because the purchasing power of your money is decreasing. You can no longer buy goods for the same price you did earlier.

High Household Budget

With rising inflation, necessities become more expensive, leaving a small portion of your income to fulfil your non-essential wants like entertainment, dining out, and travelling for pleasure.

Impact on Savings

Losing the Value of Savings

When you save your money at the bank or at home, rising inflation lowers the value of your savings. Even if you invest in a low-return investment, it may not beat inflation.

For example, if your savings account provides 2% interest on the balance amount yearly, it doesn’t beat the inflation rate of 4.6%.

Inflation-adjusted Return on Investment

High inflation reduces the inflation-adjusted return you earn on investments. If your investment provides a return of 6% and the current inflation is 4%, then your inflation-adjusted return is only 2%.

Impact on Retirement Funds

In retirement funds, you are investing your money to reap the benefits in the future. But this future value may have a lower value due to inflation over the years. The amount of ₹5 Crores will not hold the same value in the future.

Impact on Loans

When inflation reaches a certain limit, the RBI increases the interest rates to manage and reduce inflation. This leads to a higher interest rate levied on home loans, car loans and credit cards, making borrowing expensive.