Negative Real Interest Rates

Today my mentor shared a piece of interesting article with me, which triggered my concerns.

Article: Zeti cautions on cheap money in KL, Yellen suggests rate hike in US
Link: http://www.thestar.com.my/Business/Business-News/2014/03/20/Cheap-money-caution-Prolonged-low-interest-rate-regime-can-lead-to-excessive-risktaking/

It is a very lengthy article. But what really caught my attention are these excerpts:

During the release of its annual report yesterday, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said that it was undesirable to have a negative real interest rate regime for too long because it would cause financial imbalances.

Since early December last year, Malaysia has been experiencing negative real interest rates, a situation where the inflation rate is higher than the fixed-deposit interest rate.

What this means is that money that has been set aside as savings deteriorates in value because its returns are lower compared with the general rise in the price of goods and services.

In this respect, many expected Bank Negara to increase its overnight policy rate (OPR) two weeks ago, but the central bank maintained it at 3%.

In summary:

• Our money is depreciating in value.
• This situation is certainly going to stay on for some time.

It sounds to me that it's better to spend my money now than to save it in the bank, because if I spend my money now, I will enjoy full worth for my money; but if I save my money now, few months down the road I will no longer enjoy the full worth for my money due to the deterioration in the value of my money.

However, if you were to spend, make sure you spend on ASSETS (which generate income), rather than EXPENDITURES (which deplete income).

Another thing, if you're still relying solely on SAVINGS for your future, please reconsider and start learning the math of personal economy.