Inflation: What is it exactly?

Inflation: a general increase in prices and fall in the purchasing value of money.

Oh, so THAT’S what inflation is? Thanks for clearing that up, Mike. We can all go home now.

Sarcasm aside, the definition certainly doesn’t clearly explain what effect is has on your money. When the cost of goods and services becomes inflated, it means money you have already earned becomes less valuable. Inflation is one of the main reasons you NEED to invest your money. Nobody likes throwing away money, why let inflation eat away at your hard earned cash?

Canada has enjoyed relatively low rates of inflation over the past 5-year period (about 1.24% to 1.61%). In the 1989, however, that number was 5.26%. Let’s break it down:

  • A $1 candy bar in 1989, would be $1.05 in 1990
  • A $10 pack of beer in 1989, would be $10.50 in 1990
  • A $100 grocery bill in 1989, would be $105 in 1990

I like to imagine inflation as the following: I walk to the grocery store, buy my groceries for the month (Yes, I only spend $100/mo for groceries), and on the way out I toss a $5 bill in the garbage. Nobody in their right mind would do this voluntarily, so, why would you let this happen to your money when it’s sitting in a bank account somewhere?

Mike, How can I stop throwing away money? Get a no-fee bank account, open a high-interest savings account (HISA) or even better, a tax fee savings account (TFSA) and put your money in there and your money will immediately start working for you. Tangerine, EQ Bank, and PC Financial are all good choices.

I’m with Tangerine and I have zero complaints after moving from a full service bank. If you decide to go with Tangerine, use my Orange Key (43631608S1) on sign-up to buy me a beer. Thanks!

– Mike