“I Am Frugal, Why Am I Still Poor?”


Krista Jayanti felt like she was, in her words, "running and running and running and still staying in the same place." While her job was beginning to pay dividends - good employee evaluations and pay rises - the added funds seemed unable to ease household expenses.

For many young working professionals like Krista who live frugally and save faithfully, the main villain is inflation: the inexorable rise in prices for goods and services that chips away at their money's purchasing power.

Where did she go wrong?

Krista made the mistake of putting her money in a low-interest savings account, and trusting that the tiny 0.5% interest rate could hold fast against the onslaught of Indonesia's inflation rate of around 4.5%. Because of that 4% disparity, her money was quickly losing purchasing power even when stored safely in a bank!

Keeping your money in cash only - as hard currency or in low-yielding savings- is a negative-value proposition. Sure, you still need cash - as payment for living expenses and to pay off debt, not to mention as an emergency fund to cover your expenses for six months. But as American super-investor Warren Buffet puts it, "Thanks to even moderate rates of inflation, cash is basically guaranteed to lose huge amounts of value over time."

Your money worth less in the future

In 2005, Krista spent Rp 500,000 per trip to the supermarket for a particular basket of goods; 13 years later, she will be spending Rp 845,000 for those same goods. The same money, deposited in the bank in 2005 at a relatively high interest rate of 2.5%, now only yields about Rp 594,000. Thus, Krista's pay rises have practically just covered the price increases over time, and just barely at that!

What must Krista do?

She should put her cash in other investments that may compensate what she's losing through inflation and low interest rates. The practical choices would be inflation-beating investment vehicles such as:

  • Time deposits
  • Property
  • Stocks and shares

Investors, both local and foreign, are expressing optimism over Indonesia's stock markets. "Over the past decade, it’s been the second-best performer amongst emerging markets, powering ahead with an average annual return of 25.2%," says Carl Delfeld, a columnist for Forbes Asia.

You may have thought that these types of assets are only for high flying executives with finance backgrounds. The truth is, regular people like you, me and Krista simply cannot afford not to consider these investments.

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