Education · 5 min read
Crypto Wealth Group ·
You check the bank balance and it looks about the same as last year, maybe a little higher with interest. But the weekly shop costs more, the kids' activities cost more, and the mortgage payment hasn't got any easier. Somewhere in the back of your mind is a question you haven't had time to answer: what is the real inflation impact on savings like mine?
The short answer is that inflation quietly reduces what your money can buy, even when the number in the account stays the same. The longer answer, and the more useful one, comes from running the numbers on your own savings rather than reading another headline about the economy.
Inflation is the general rise in prices over time. When prices rise, each dollar buys a little less. Economists call this a loss of purchasing power.
If your savings earn less interest than the rate of inflation, the real value of that money is shrinking. It doesn't feel like a loss, because nothing leaves your account. That's exactly why it's so easy to ignore.
The key word is compound. Inflation doesn't just take a slice once. Each year's price rises build on the year before, so the effect grows the longer your money sits still.
Most of us have heard the official inflation figure read out on the news. It's useful, but it's abstract. It's hard to feel a percentage.
What changes things is seeing the effect on money you actually have, over time frames that mean something to you: when the kids finish school, when the mortgage might be paid down, when retirement starts to feel real.
Most people have never done this calculation. When they do, inflation stops being a vague worry and becomes something concrete they can think through calmly.
CWG's lesson breaks the exercise into three parts. You can do a rough version with a calculator in a few minutes.
Here's an illustration only, using round numbers. Say you have $50,000 in savings and you assume inflation averages 3% a year. Ignoring interest for a moment, here's roughly what that $50,000 would buy in today's dollars:
The balance hasn't moved, but its buying power has fallen by around a quarter in ten years and close to half in twenty. Your own result will depend on your actual savings, the interest you earn and the inflation rate you use.
If your savings do earn interest, the real question is whether that interest, after tax, keeps up with inflation. The gap between the two is what really matters.
You may come across commentators who argue that official inflation figures understate the real rise in living costs, and who publish their own higher estimates.
You can run your numbers both ways if you're curious. Just be aware that these alternative estimates are contested and aren't endorsed by official statistics agencies. The official figure is the sensible starting point, and anything else should be treated as a different point of view rather than the truth.
The third step compares your savings with what the same money might have become in an asset that has historically tended to hold its value against inflation. Some people look at things like property, shares or, more recently, Bitcoin when thinking about this.
Here's the honest part. Looking back always makes an asset look easier to hold than it was at the time. These assets can and do fall sharply, sometimes for long periods. And past performance is not a reliable indicator of future performance. A comparison like this can help you understand the trade-off between the slow, steady loss of buying power in cash and the ups and downs of other assets. It can't tell you what will happen next, and it isn't a reason on its own to do anything.
Cash also has real strengths: it's stable, it's easy to get to, and it's there when the car breaks down. The point of the exercise isn't that cash is bad. It's knowing what holding it actually costs you over time.
No. The purpose isn't to frighten anyone. It's to take a concept that usually feels distant and make it personal, so you can think it through properly.
If you're juggling work, family and a mortgage, you don't need more noise. You need a clear picture of your own situation. A few numbers on a page often does more for a calm decision than hours of reading opinions online. And it gives you something specific to discuss with your accountant or adviser.
Liquid savings are money you can get to easily, such as everyday and high-interest bank accounts, term deposits and similar low-yield holdings. It usually doesn't include your home, your super or shares, which work differently.
The official Consumer Price Index from the Australian Bureau of Statistics is the standard starting point. You can test a lower and a higher rate to see a range, rather than relying on a single number.
Only if the interest, after tax, is equal to or higher than inflation. If it's lower, your savings are still losing buying power, just more slowly.
That's a personal decision that depends on your goals, timeframe and situation, which general education can't cover. The calculation is a tool for understanding, and a good one to bring to a conversation with your own adviser or accountant.
If you'd like to go further than a back-of-the-envelope sum, the full Personal Inflation Impact Calculator & Analysis lesson walks you through the worksheet step by step, using your own figures over 5, 10 and 20 years. It's part of Bitcoin Foundations and available to members in this lesson.
Even if you never open it, try the three steps above with your own savings this week. Twenty minutes with a calculator can turn a nagging worry into something you actually understand.
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