Money and Inflation: How to Protect Your Finances

[mattmns]

I am no financial expert, but I keep hearing talk of inflation. Usually I would not care, but since I plan on taking advantage of the government, I thought I should look into it.


So here is the scenario. I will be receiving as much as possible of $17,500 over the next two years in student loans, but I do not plan on spending it. Now my question is: What should I do with my money to make sure it does not lose any value due to inflation? Do banks keep your money up with inflation? How about bonds/securities? Thanks, any help would be appreciated.

 

[selfAdjoint]

So here is the scenario. I will be receiving as much as possible of $17,500 over the next two years in student loans, but I do not plan on spending it. Now my question is: What should I do with my money to make sure it does not lose any value due to inflation? Do banks keep your money up with inflation? How about bonds/securities? Thanks, any help would be appreciated.

Assuming you will have to repay the loans, you want to invest the money in something that will appreciate faster than the interest on your loans. A bank account won't do that; the banks MAKE loans, that's how they make money! are they going to pay their depositors more than the themselves will make? How then would they show a profit?

BTW how do you get off being able to treat student loans as capital? Isn't this breaking some law?

 

[mattmns]

I do not plan on paying the loans back, and it is perfectly legal as far as I know. The loans I am going to be taking out will cancel out (not sure of the offical word) after I teach for five years, since I will be teaching math at a title 1 school. Part of the teacher recruitment and retention act of 2003.

I am mainly just looking for something that will stay at the same level as inflation.

 

[russ_watters]

Well, about the safest way to just beat inflation is with a CD (certificate of deposit). They are FDIC ensured, so they are as near zero-risk as investment gets (as long as the government doesn't collapse, you'll get the money back). Current rates: http://banking.yahoo.com/res/cdrates.html

Personally, I'd be looking to do better, but that depends a lot on your time horizon for investing.

 

[mattmns]

Thanks Russ. I plan on investing later in life, but for now I just want to leave college on the plus side with no, or very little, risk.

 

[Astronuc]

Year Inflation (from http://www.eh.net/hmit/inflation/ )
--- _ Rate
1990 5.39
1991 4.22
1992 3.01
1993 2.98
1994 2.60
1995 2.76
1996 2.96
1997 2.35
1998 1.51
1999 2.21
2000 3.38
2001 2.86
2002 1.58

From the Census Bureau - "To adjust data for inflation, please use the inflation calculator which is a product of the Bureau of Labor Statistics (BLS) (http://www.stats.bls.gov/ ). In the BLS website, under "Inflation & Consumer Spending," click on "Inflation Calculator." This will bring up a small calculation box to enter the dollar amount to inflate. "

http://www.stats.bls.gov/ - look toward the left side toward top.

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or look at http://www.gpec.org/InfoCenter/Topics/Economy/USInflation.html

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Basically try to get at least 4-5% APR.

However, bear in mind it has been my general observation that the reason that inflation (the aggregate that is) is low is that wage inflation is generally lower than price inflation for the bottom 70% of income earners (i.e. low and middle class).