Pay rise in line with Inflation? But what is Inflation & Why you should Care....
We all hear a lot about inflation. 'High Inflation', 'Low Inflation' 'Pay rises in line with Inflation' there are so many terms but when was the last time 'Inflation' was actually explained to you? We hear a lot about it but unless you have taken a Business Studies course, it isn't something that you would have been explained. Well here you go, a brief explanation and what it means to you...
The official definition of Inflation is 'a sustained increase in the price level of goods and services in an economy over a period of time' - any clearer? Well let me put it another way. In your local pub, how much was a pint of beer or cider 3 years ago - £2.80? How much is it now? £3.40? That is inflation, the fact that what you buy goes up in price.
The important thing to recognise with your money is the spending power of your money is decreasing year on year when there is positive inflation. If you spent £1000 today and tried to buy the same things in 5 years time with £1000 you wouldn't have enough money to buy them because the cost of what you can buy with your money is going up.
How this impacts on you over the longer term is typically via your savings. Interest rates in Banks and Building Societies have been low for a period of time. Great news for borrowers but poor news for savers. Think about it this way, if you have £10,000 in your savings account and you are getting an interest rate of 1% per year, but inflation is 2.4% per year (what it is today 25/05/2018) the 'REAL' return on your money is minus 1.4% because the buying power of your money is reducing.
So when you get your next pay review and it is an
'Inflationary Pay Rise' it means your pay is keeping pace with the increase in price on what you spend your money on.
We hope this has helped and for more information on what we do please see www.fortemfinancialeducation.co.uk or feel free to contact us.