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I often get questions like, “What’s the point of earning that little bit of interest? It won’t be amount to much anyways…” or “It’s much safer I keep the money to myself…why bother taking the risks?” or “Put in FD better la…no need to worry about the hidden fees.”

In short, I’m talking about interest rates and how it can affect your hard-earned savings. Interest rates is one of those “Invisible Laws” where even if you chose to ignore it, your life is still governed by it. The “you can run, but you can’t hide” sort of thing. Just take compound interest as an example, it’s an invisible force that can build an amount of “fortune” over a period of time.

In this case, your money’s value is always relative to the prevailing interest rate and the quality of life you are living.

For example, my RM 10.00 means alot to me. I can eat 3 meals a day with RM 10.00. RM 10.00 to my friend Killar (for example’s sake) who now resides in Shang Hai, probably just meant a cup of coffee to him.

That’s just to illustrate how the same RM 10.00 can be “valued” differently. That’s why some people downgrade their lifestyles by migrating to another country (with lower cost of living) for retirement purpose. They can enjoy “more” for the same amount of money they have.

How then does the economic condition of a particular country affect the value of your money? Simply put, if the inflation rate for the goods and services you use daily increases every year, the same RM 10.00 you have today is definitely not going to buy the same things 10 years later. Forget about the Consumer Price Index (CPI) published on the papers. Items listed in the Index are mainly “controlled items”. If you are like any other Malaysian I’ve known, you are very likely going to send your kids to college, an “overhaul” with the surgeon at least once this lifetime, and pass by the LDP tolls a few times in a year. All these costs don’t rise 3.5% a year, this I guarantee you.

So with all that aside, if inflation is such a scary thing, why is nobody making a big fuss over it? Why is there no campaigns that constantly reminds the people to battle inflation, to start saving and invest their money to outrun the inflation monster? Same reason why they don’t teach personal financial courses in school. I would like to speculate that there’s a conspiracy behind all these, but heck, with Malaysian bloggers being sued and politicians being held by the OSA for disclosing “conspiracies”, I am better off sticking to my topic, with no prejudice and malice whatsoever.

So, I have here an interesting “illustration” on how the interest rate can affect your money. I have thrown in some figures to illustrate the example, and it’s important to note the number of years and the prevailing interest rates.

The Value of Your Money Over Time (requires Flash plugin)

Enjoy!

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