Inflation, what it is? how does it affects me?

Inflation is defined as a general increase in prices and fall in the purchasing value of money.

In the local setting, it is equated more on an increase in prices because it is more discernable however it also denotes a decrease in purchasing power.

Inflation reduces the purchasing power of money. For example, a Php 2 worth of goods (1 kilo of rice) bought in 1980 can be bought in 2005  in the amount of Php 20.00.

Thus in personal finance, it is advisable to put just adequate funds on your savings account for bank deposits most of the time does not ride with the inflation rate. For example, your savings may earn an interest of 1% per annum but with an inflation of 4% per annum, you are losing 3% of the purchasing power of your money.

What financial instrument are inflation resistant or are least does not erode in value in time. Investment in certain mutual funds usually yields a return greater than the inflation rate, investment in stocks, commodities such as gold and real estate grows in value along side with the inflation.

Therefore, when you have established your contingency fund, put your excess funds to financial instruments that has a greater yield than the inflation, for money is only worth the amount of goods that it can purchase.