If you’re a Canadian and have been in the workforce for a decade or more, then you know that your income purchases less today than the first year of your working career. Inflation is a part of our society and while our government continues to devalue our money by printing more and more of it, inflation will undoubtedly continue. This is not only a Canadian concern though. All around the world people are feeling the effects of inflation due to excessive money printing; but more on that another time. The long-and-short-of-it all is this: YOUR MONEY WILL continue to BUY LESS as the years go by.
A quick 100-year calculation using the Bank of Canada (BoC) inflation calculator showed the cost of a fixed “basket” of consumer purchases in 1915 was $100.00. At the end of 2015 that cost was $2,083.61. More recently, over the last 10 years prices have gone up 18.01%. Has your income gone up by the same or greater?
The answer is probably, No.
Whether you’re a six-figure earner or you make 30k a year, your “money” is losing buying power. There are a lot of ways that you can protect your money from devaluation but we’ll discuss two common options people take.
One option is the stock market; put a lump of your savings into a portfolio and see what happens. Sounds like gambling to me. But if you’re prepared to leave your finances up to other factors (and people) other than your own due diligence, then putting your money into stocks may be a good fit for you under the following two conditions:
- You have the stomach for volatility and,
- Your primary objective is to see a substantial return in a short period of time… hopefully.
Another option and this tends to be the easiest and most selected, is to open a bank savings account. No hassle involved; just open the account, decide how much you want to save and how often, put it on auto-pilot, and watch your savings grow.
In today’s economy, bank savings accounts are not a viable savings vehicle. Most of the interest rates offered are earning below inflation rates. The sad reality is many savers make a future withdrawal only to realize that they have lost money on an after-inflation basis.
So, what do you do if you’re not a savvy investor?
Buy financial insurance.
We have insurance for almost every aspect of our lives yet insurance is something many of us hopes we never need to use.
Buying financial insurance in Canada, or anywhere else for that matter, is putting your money into a vehicle that is protected long-term from the ups and downs of the volatile economy.
Buying financial insurance preserves your buying power and provides a hedge against inflation.
The global economy is changing but the only economy that should matter to you is yours.
As an independent insurance advisor and income protection specialist for almost a decade, Ryan has been providing clients with customized personal insurance and financial solutions through disability, life, critical illness, long-term care, and other personal insurance products while providing strategies for hedging income and preserving wealth.
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