Inflation and your money

Inflation is the slow, steady rise in the general price level — the reason the same 100 units of money buy a little less each year. It is the quietest force in personal finance because it never announces itself: no crash, no headline, just a bank balance that holds its number while the number buys less. At even a modest 3% a year, that erosion halves the purchasing power of cash in roughly 23 years — well within a working life. Understanding it is what turns "investing" from optional into necessary.

What is inflation, really?

A rise in the general level of prices, which is the same thing as a fall in the value of money. If a basket of goods that cost 100 last year costs 103 this year, inflation was 3% — and the cash you were holding just lost 3% of its power to buy that basket. Nothing was taken from your account; the account simply buys less. That's why inflation is best thought of as a tax you pay for holding cash, collected silently.

How fast does inflation eat your savings?

Faster than most people expect, and you can estimate it in your head with the Rule of 72. Divide 72 by the inflation rate to get the years for prices to double — and for your cash to lose half its worth: at 2% that's about 36 years, at 3% about 24, at 5% about 14 — mental-math estimates that run a year or so long at the low end (3% is closer to 23 in exact terms). The recent past made this concrete — US consumer prices rose 9.1% in the year to June 2022, the largest jump in four decades — and note the cruel detail: when inflation falls back to 2–3%, prices don't reverse, they just climb more slowly from the higher level.

Isn't cash the safe option?

Only in name. Cash is safe nominally — the number never falls — but that is exactly what disguises the loss, because the damage shows up in purchasing power, not on the statement. Held long enough, cash is the one asset guaranteed to lose to inflation; a saver who kept $500,000 in the bank for 30 years at 2.5% inflation would watch it quietly become worth about $240,000 in today's terms, as the how-to-start guide lays out. "Playing it safe" with cash is not the absence of risk — it's a slow, certain version of it.

How do you protect against it?

By owning things whose value rises with prices instead of melting under them. Productive businesses raise their prices, grow their earnings, and compound over time — which is why equities have historically been the most reliable long-term defence against inflation, and why the portfolio is invested in companies rather than parked in cash. The goal isn't just a positive return; it's a real return — growth that beats inflation after the tax it takes. Compounding is the engine that makes that gap, held for years, decisive.