← Glossary/Finance
Inflation
When prices rise across an economy over time, your money buys less than it used to, even though the number stays the same.
Example
A bag of crisps cost $1 in 2010. The same bag costs $1.50 today. The dollar in your pocket is the same dollar, but it now buys two-thirds of the crisps it used to. That difference is inflation.
How it fits in
If inflation runs at three percent a year, a hundred dollars today buys about seventy-four dollars of goods in ten years. This is the quiet reason cash-only saving rarely keeps up. The number does not shrink, but what it can buy does. Investing at a return above inflation is what protects your long-term buying power.
Where this is taught
Related terms
When the money you earn from saving starts earning its own money on top.
Interest paid only on the original amount, never on the interest you have already earned.
Needs are the things that keep you safe and well. Wants make life nicer. Mixing them up is what empties most budgets.