Don't lose money..... Learn to stay ahead of inflation. Yes, it is possible!

Whether you believe the the government's quoted CPI (inflation rate) is a true indicator of inflation, or like me, you believe that inflation is much higher than what the governments say it is, you still need to keep ahead of the inflation rate or you will lose money.

Now, whether you believe the CPI rate or you believe inflation is actually much higher is a discussion topic for another day.

The question you need to ask is:

"Is my money losing or gaining value over time to counter rising prices?"

If you have $1,000 cash today, and keep it in a jar at home, you are losing money because if inflation is at (say) 2.5%, then next year your $1,000 will have 2.5% less buying power because prices will have gone up by an average of 2.5% (or $25). This means that stuff that costs $1,000 today will cost $1,025 next year - hence your $1,000 will buy you less and less each year.

Let's say you take that $1,000 and put it in the bank, where you are paid interest at (say) 2.5%.

Your $1,000 will have earned $25 interest and is now $1,025. HOWEVER, you need to pay tax on the $25 earned, which will be (say) 30%. So your $25 is now about $17 - so you are still losing money!

Most people will just put their money in the bank and either forget or don't understand that unless they have their money work for them, they will end up falling behind and losing the value of their money over time because inflation and taxes will eat away at it.

If you look at the rising cost of living, do some basic numbers by taking into consideration past bills you have received over the years, you will likely find that the cost of living is actually higher than the government's CPI numbers. Today, true inflation is closer to 5% rather than the quoted 1.5 - 2.5% that we hear year after year. That being the case, and you believe that the inflation is around 5%, then you will need to earn about 7.5% (or 5% after taxes) on your money just to keep up with inflation!

The banks may currently give you 1% interest and that's it! So where can you achieve returns of 7.5% or better? Well, this is for you to work out, but I can tell you that I have done it in both property and equities (stocks).

Property: In Sydney Australia, property appreciates in value around 8% per year on average. On top of that capital gain, property also generates income in the form of rental. My properties produce an average 8% capital gain as well as about a 5% rental income - that's 13% return on the value of the property which compounds year after year.

Equities: Though relatively new to investing in stocks (compared to my 20+ years of property investing), I have managed average annual gains of around 15% through both dividends and capital gains. I don't go wild, and generally invest in sensible solid companies. I do not speculate.

In short, beating inflation is definitely doable in my opinion.

Not only does your money NOT lose value, it actually GAINS value.

Do your homework, investigate the inflation rate and determine what YOU think it is. Look at the cost of day-to-day items you purchase and how much they have increased over the last year or two and use that to calculate your own inflation number.

Decide on your investment strategy to not only keep up with inflation, but actually get ahead of it. Create a plan and execute it.

Be sure to refine the plan as time goes by as things change!