Okay, now you have some money, so now what?
What a question, you may say, I’ll spend it. I’ll finally buy the smartphone I’ve been dreaming about for so long …
Why not, it’s probably a valid option. But maybe you’re quite happy at the moment and have no immediate needs to meet (it seems this happens, at least from time to time …). Or – and this is significantly more likely to be the case – you simply don’t have enough money to allow you to buy the smartphone.
In this case, you will put your money aside and look for an opportunity to spend it elsewhere or wait until you have saved enough to be able to make a major purchase.
You then have several options.
The most classic one consists in putting your money in a piggy bank – the little ceramic piggy for example with which most children learned to save – or keeping it under our mattress. While this is the simplest way to keep your money, it is unfortunately also by far the least effective.
Stored in a piggy bank in a safe place, nothing will happen to your money. You can be certain that after weeks, months or even several years, our little pig will always contain the same amount of money. The biggest drawback is that this amount of money will not have the same value that is has today. As the prices of goods and services tend to rise over time, your money will not allow you to buy in one year what you could buy today. This phenomenon is called inflation.
So if you want to preserve your purchasing power – that is to say, be able to buy in a year what you can buy today — you have to find a way to preserve your money that allows it to grow over time.
A fairly simple way to achieve this goal consists in entrusting your money to a bank by placing it on a savings or a bank account. The Bank will pay you credit interest, the amount of which depends on the type of savings vehicle you have chosen and on how long you place your money.
But again, there is no guarantee that your purchasing power remains intact. Often, the interests paid by banks are lower than inflation, so your purchasing power is deteriorating over time despite the interest received.