Inflation=Wealth Biggest Enemy
Inflation is our biggest enemy in building wealth. If you neglect the existence of inflation, you definitely end up being poor or middle. If you still wonder what inflation is, you may refer to my previous post.
Inflation is wealth stealer. It steal your money silently and unconsciously. You might not aware of your decreasing purchase power in one or two year times but it make a large different in long term, let say 10 years. 10 years ago, 1 plate of mee in my hometown sold for RM1.30. Now the same plate of mee sold for RM2.30. Nearly double! Price of goods doubled every 12 years with inflation rate 6% per years.
A rich man wish to retire by selling his business for 3 millions and make it fix deposits with 4% per annum, which mean RM 120000 interest per year. He hope that by this way, he have enough living expenses yet still can give the 3 millions to his children when they pass away.
Without inflation, it is a nice plan and one stone kill two birds. With inflation, it is just a stupid plan. The rich man’s money become half every 12 years with inflation 6% per year (conservative expectation of inflation rate).
Table: Saving and interest with 3 millions at different age
| Age | Saving (6% inflation) | Interest (4% interest) |
| 50 | RM3,000,000 | RM120,000 |
| 62 | RM1,500,000 | RM60,000 |
| 74 | RM750,000 | RM30,000 |
Although he still can see RM3,000,00 numbers in your bank passbook after 24 years or more, but the value or purchasing power have dropped. He actually only owned RM750,000 value of money!
Saving money in bank for interest in long term is the most dangerous plan in financial planning. Inflation steal all your wealth.
