I get that the value of money depreciates over time hence why they tell you that the best time to invest is now. But i don’t get how exactly investing now helps you in the future if the cost of living increases with time too anyway. So like let’s say you invested $1000 today and then in the future that’s equivalent to $4250, but then the price of things have also increased so how much richer are you really if you have to spend a lot more in the future anyway?
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There seems to be some confusion of comparing the investment advice against inflation… but both are reasons why money today is more valuable, they’re not competing. Investment isn’t trying to beat inflation to make the advice make sense – both components are reasons why the advice is valid.
$1000 today, invested, will grow until you need to withdraw it. A simple example: Invest $1000 today at 1% monthly interest, then by December 10 (2 months from now) you will have $1020.10 available. If you have to wait a month to invest it, then on December 10, you will have only $1010 available. Because the interest has less time to accumulate. So getting the money sooner, means it’s worth more when you need it.
Similarly, what inflation does is *reduce buying power*. If you have $1000 today, you can buy 10 Widgets at $100 each today. If inflation increases the cost of a Widget to $200 (aka: the “value of a dollar reduces by half”), then that same $1000 will only buy you 5 Widgets in the future. The purchasing power of money is higher now than it will be in the future (assuming inflation instead of deflation, which in most modern cases is a safe assumption, or there’s other major problems going on)
So in other words – it’s not about how much richer you will be, or whether investment beats inflation… *both investment potential and inflation risk* are reasons why having money in hand today is more valuable than having money tomorrow.
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