It’s hard work being a parent in charge of your growing family. So, is your money working as hard as you behind the scenes?
One of the biggest areas families spend their money on is groceries. With growing mouths to feed, it is easy to spend $1,000 a month or more on food alone.
What is scary is the impact inflation is having on the rising cost of your grocery bill. Inflation is the general increase in prices over time. For a healthy economy, the Federal Reserve has a target for US inflation to be, on average, 2% a year. If this target is met, this year’s $1,000 a month grocery bill will cost you $1,020 in a year’s time. To offset this rising cost, you will need to find an extra $20 per month or $240 for the entire year. Every $1 you spend is losing its purchasing power over time.
If you want to buy the same basket of groceries in a year’s time, you need your $1,000 in your bank account to grow in value beyond the rate of inflation. If not, you will need to find the extra money by either working more hours or earning more money.
So, it is vital you make each $1 you need to spend work as hard as it possibly can for you.
Become an investor and maintain your purchasing power
A real return is one that is greater than inflation, and one of the best ways to generate a real return to combat the impact of inflation is to invest in the stock market.
Most checking accounts don’t offer much in the form of returns, much less returns that keep ahead of inflation. However, history has shown that the stock market can consistently outperform both cash and inflation over time, and stock market investing is a key way of maintaining your money’s purchasing power. The S&P500 Index, which is used as a benchmark for the biggest 500 companies in the US economy, has grown in value by 172% over the last 20 years as of January 1, 2021, outperforming inflation measured by the Consumer Price Index by 122%. This outperformance shows how the stock market can generate real returns even after accounting for inflation.*
You don’t need to be an expert to invest
There are tools to help you invest. One such tool is to use a portfolio that is managed on your behalf by an expert. This means that you can sit back and relax or carry on with being a busy parent knowing that:
- An expert portfolio manager will pick the investments that they think will perform the best based on your profile.
- You don’t have to spend your time managing your own portfolio.
- The risk of investing is managed and well diversified.
Save has created three portfolios: Conservative, Moderate and Growth. All you have to decide is which one is right for you. Learn more about Save’s portfolios here: https://www.joinsave.com/analyzer
Maintaining your purchasing power
If you select the Save Moderate strategy with a Save Debit Invest Card, the expected return after fees is currently 2.99%** per annum. If you spend $1,000 on groceries, Save will invest $1,000 into the Moderate strategy on your behalf. In one year’s time, if the average expected return is generated, Save will pay you a reward of $29.99. This means that, if the rate of inflation remains at 2%, when you buy your groceries next year you will have the extra cash you need in your checking account to more than maintain your purchasing power.
* https://fred.stlouisfed.org, https://fred.stlouisfed.org/series/CPALTT01USM659N
Consumer Price Index: Total All Items for the United States, Growth Rate Same Period Previous Year, Annual, Not Seasonally Adjusted
**Average annual returns are based on hypothetical back-tested performance. Hypothetical back-tested performance is no guarantee of future performance and actual results will vary. Returns are subject to change daily. Minimum return will always be at least 0%. All return figures shown are for informational purposes only and are not actual customer returns. For more detailed information please see Hypothetical Back-testing.
Emma Wright, Financial Coach, Chartered Financial Planner, founder of Emma Wright Coaching.