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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late....

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late.
Inflation does not take away your capital visibly. It does not reduce the number in your bank account. Instead, it reduces what that number can buy. A Rs 100 note today buys far less than what it did ten years ago. This gradual and relentless decline is what truly destroys long-term financial security. The real damage happens when people invest in financial products that earn less than 10 per cent returns, especially over long periods. India’s long-term inflation averages around 6 to 7 per cent. When you add lifestyle inflation - the rising cost of healthcare, education, housing, travel, and personal aspirations - your effective inflation rate is often much higher. So, if you are earning 5 to 8 per cent on your money, you are not growing your wealth. You are moving backward. This is why low-yield products, despite feeling safe, often end up becoming wealth destroyers. Your money appears protected, but its strength - its ability to buy goods, services, experiences, and opportunities - is weakening year after year. Fixed-income products like bank fixed deposits and recurring deposits are essential, but only for short-term goals within the next three years. Beyond that period, the returns simply do not keep pace with inflation. A few products are a financial mess - they are locked in for the long term with poor liquidity and still give less than 8 per cent returns, which creates major problems in your financial goals journey. To genuinely grow wealth, your investments must consistently outperform inflation and achieve more than 10 per cent returns. For long-term financial goals - whether 5, 10, or 20 years away - only a few asset classes have historically achieved this: Direct stocks Equities represent ownership in businesses. As companies grow their revenues and profits, shareholders participate in that growth. Over long horizons, equities remain one of the most reliable inflation-beating asset classes. Equity and hybrid mutual funds These funds offer equity-debt-gold diversification, professional management, and disciplined investment structures that are essential for long-term compounding. Gold Gold has been a time-tested hedge against inflation and periods of economic uncertainty. Ultimately, financial planning is not about protecting your principal. It is about protecting and enhancing your purchasing power. That is what funds your child’s education, your child’s marriage, your retirement lifestyle, and your long-term dreams. Inflation does not announce its arrival. It works silently. The only defense is intelligent asset allocation and a long-term investment mindset. Your money is supposed to work for you. Make sure it continues to do so - not just in numbers, but in real value. (The author is a Chartered Accountant and CFA (USA). Financial Advisor.Views personal. He could be reached on 9833133605.)

When Is the Right Time to Buy a House?

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Buying a house is one of the biggest financial decisions in a person’s life. It is emotional, aspirational, and deeply personal. But it must also be financially sensible. A home is not something you buy on impulse or because everyone else is doing it. It is a long-term commitment that affects your lifestyle, liquidity, and future goals.


So how do you decide when the time is right?


The first question to ask yourself is simple: Am I going to live in this city for the long term? If your career is stable, your family is rooted in the city, and you do not expect to relocate to another city or abroad, then buying a house makes sense. Real estate works best when you stay in the property for a long time. If you are constantly shifting locations due to career, best to wait and then buy later.


The next factor is your family plan. Many people buy a 2 BHK in their late twenties or early thirties and later realise that a 3 BHK would have been a better choice. Families grow, children arrive, parents move in, and priorities evolve. If you have decided to start a family, if you prefer a specific school for your children, or if you want a society that offers enough recreation and amenities, you must think long term. Planning the right size of the house and society is essential. Upgrading later often becomes financially stressful and messy. So buy a house with a long-term perspective.


It is important to understand that a house is a poor investment if your intention is only to look at it as an investment. When you calculate the Internal/Intrinsic Rate of Return (IRR) after including maintenance, society charges, property taxes, brokerage, and registration costs, the returns look weak compared to other asset classes. The situation becomes even worse if you buy a property on a loan purely for investment. Buying a house for investment with borrowed money is a financial disaster. Paying interest for fifteen to twenty years on an asset that generates low returns does not create wealth. It creates financial stress and actually gives negative returns after all costs and inflation.


However, buying your first house to live in is extremely important. It is not an investment. It is security, stability, and peace of mind. Owning the roof over your head reduces financial stress, gives your family stability, and protects you from rising rents. A home is part emotional comfort and part financial foundation.


One financial rule should always be followed. Your home loan EMI must not exceed 30 percent of your monthly income. Anything higher affects your lifestyle and other long-term goals such as your children’s education and your retirement.


In summary, buy a house when your life is stable, your family plans are clear, and your finances are strong. A well-timed home purchase is not only a transaction. It is the beginning of a secure future.


(The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal. He could be reached on 9833133605.)

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