How to calculate cash loss over time?
If inflation is at 2% per annum, in a year you would need £102 to buy equivalent goods to what you could buy today.  So if you keep your money in a drawer the buying power of your £100 in a year will be only 100/102 = 98.039% of what it is currently. While it is a true loss, as you've determined, is not a cash cost, per se. A cash cost would be a decrease in cash holdings.  Inflation does not take your cash balance; it devalues it, so it is an accrued loss. Central banks are extremely lazy in determining inflation, so the highest resolution available at a public level is monthly.  In the United States, there is a small project that tries to calculate daily inflation rates and seems to do a decent job, but unless if you are a customer of a particular financial institution, you will suffer a lag.  The small project refuses to make the data public in real time or even allow outside analysis. In the UK, the Office for National Statistics is responsible for consumer inflation statistics.  The methodology is not readily available, but considering the name, it is most likely an inferior Laspeyres index instead of the optimal Fisher index as it is in the US. To calculate the accrued cost due to inflation, simply multiply the amount of money held by the price index value at the beginning of the time held and divide by the price index value at the end of the time held. For example, to determine the amount of value lost since March 2014, multiply the money held by the price index value for March 2014 and divide by June 2014. It helps to put the numbers in terms of an asset. Say a bottle of wine costs 10 dollars, but the price rises to 20 dollars a year later. The price has risen 100%, and your dollars have lost value. Whereas your ten used to be worth 100% of the price of bottle of wine, they now are worth 50% of the risen price of a bottle of wine so they've lost around 50% of their value. Divide the old price by the new inflated price to measure proportionally how much the old price is of the new price. 10 divided by 20 is 1/2 or .50 or 50%. You can then subtract the old price from the new in proportional terms to find how much value you've lost. 1 minus 1/2 or 1.00 minus .50 or 100% minus 50%. There are two things you need to keep in mind when you look at Inflation as an entity. Inflation is necessary to keep in check the value of goods. As per Moore's Law for example, a mobile phone that you buy for £100 today will be available for £50 in two years. With increased purchasing power, one needs to maintain balance between the purchasing power and its value. If you think about the 'loss' at a rate of 2% you would have £96.04 (in terms of today's value) in two years. But if you looked at the same cell phone as leverage for your business where it allowed you to do work and earn £1000 in two years - the investment would clearly offset the cost of inflation. Inflation is incentive for people to spend their money. If you for example spent all of your £100 today, it is £100 income for someone else. He has further incentive to spend it creating a chain of transactions. In theory while this is a true mathematical loss, the increasing purchasing power helps you leverage your financial asset to get a return on your investment.
"Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. How about Enron?  GM? WorldCom? Lehman Brothers?  Those are just a few of the many stocks that went to 0.  Even stock in solvent companies have an ""all-time high"" that it will never reach again.   Please explain to my why my thought is [in]correct.  It is based on flawed assumptions, specifically that stock always regain any losses from any point in time.  This is not true.  Stocks go up and down - sometimes that have losses that are never made up, even if they don't go bankrupt.  If your argument is that you should cash out any gains regardless of size, and you will ""never lose"", I would argue that you might have very small gains in most cases, but there are still times where you are going to lose value and never regain it, and those losses can easily wipe out any gains you've made.   Never bought stocks and if I try something stupid I'll lose my money, so why not ask the professionals first..? If you really believe that you ""can't lose"" in the stock market then do NOT buy individual stocks.  You may as well buy a lottery ticket (not really, those are actually worthless).  Stick to index funds or other stable investments that don't rely on the performance of a single company and its management.  Yes, diversification reduces (not eliminates) risk of losses.  Yes, chasing unreasonable gains can cause you to lose.  But what is a ""reasonable gain""?  Why is your ""guaranteed"" X% gain better than the ""unreasonable"" Y% gain? How do you know what a ""reasonable"" gain for an individual stock is?" "A mutual fund's return or yield has nothing to do with what you receive from the mutual fund. The annual percentage return is simply the percentage increase (or decrease!) of the value of one share of the mutual fund from January 1 till December 31. The cash value of any distributions (dividend income, short-term capital gains,  long-term capital gains) might be reported separately or might be included in the annual return.  What you receive from the mutual fund is the distributions which you have the option of taking in cash (and spending on whatever you like, or investing elsewhere) or of re-investing into the fund without ever actually touching the money. Regardless of whether you take a distribution as cash or re-invest it in the mutual fund, that amount is taxable income in most jurisdictions. In the US, long-term capital gains are taxed at different (lower) rates than ordinary income, and I believe that long-term capital gains from mutual funds are not taxed at all in India. You are not taxed on the increase in the value of your investment caused by an increase in the share price over the year nor do you get deduct the ""loss"" if the share price declined over the year. It is only when you sell the mutual fund shares (back to the mutual fund company) that you have to pay taxes on the capital gains (if you sold for a higher price) or deduct the capital loss (if you sold for a lower price) than the purchase price of the shares. Be aware that different shares in the sale might have different purchase prices because they were bought at different times, and thus have different gains and losses.  So, how do you calculate your personal return from the mutual fund investment? If you have a money management program or a spreadsheet program, it can calculate your return for you. If you have online access to your mutual fund account on its website, it will most likely have a tool called something like ""Personal rate of return"" and this will provide you with the same calculations without your having to type in all the data by hand. Finally, If you want to do it personally by hand, I am sure that someone will soon post an answer writing out the gory details." I would apply extra cash left over at the end of the month as follows, in order of priority: Realize, though, that this is my take on priority. My experience has been that a liquidity crisis is much more stressful than having a mortgage or other debt -- illiquid wealth is almost useless when you need cash. So if you still have strong feelings about retiring that debt after considering the liquidity issue, go ahead and swap #3 and #4 above. Make plans to pay off the mortgage over the next 10 years. Find a mortgage payoff calculator and make extra monthly payments that keep you on a 10 year schedule. I'd strongly suggest making sure your retirement savings are on track, though. Time is on your side here, and your required monthly contribution will be low now while you're still in your 20s. "First to clear a few things up.   It is definitely not a gift. The people are sending you money only because you are providing them with a service.   And for tax purposes, it is not a ""Donation"". It has nothing to do with the fact that you are soliciting the donation, as charitable organizations solicit donations all the time. For tax purposes, it is not a ""Donation"" because you do not have 501(c)(3) non profit status.   It is income. The question is then, is it ""Business"" income, or ""Hobby"" related income?   Firstly, you haven't mentioned, but it's important to consider, how much money are you receiving from this monthly, or how much money do you expect to receive from this annually?   If it's a minimal amount, say $50 a month or less, then you probably just want to treat it as a hobby. Mostly because with this level of income, it's not likely to be profitable. In that case, report the income and pay the tax. The tax you will owe will be minimal and will probably be less than the costs involved with setting up and running it as a business anyway. As a Hobby, you won't be able to deduct your expenses (server costs, etc...) unless you itemize your taxes on Schedule A.   On the other hand if your income from this will be significantly more than $600/yr, now or in the near future, then you should consider running it as a business.   Get it clear in your mind that it's a business, and that you intend it to be profitable. Perhaps it won't be profitable now, or even for a while. What's important at this point is that you intend it to be profitable.   The IRS will consider, if it looks like a business, and it acts like a business, then it's probably a business... so make it so.   Come up with a name for your business. Register the business with your state and/or county as necessary in your location. Get a bank account for your business. Get a separate Business PayPal account. Keep personal and business expenses (and income) separate.   As a business, when you file your taxes, you will be able to file a Schedule C form even if you do not itemize your taxes on Schedule A. On Schedule C, you list and total your (business) income, and your (business) expenses, then you subtract the expenses from the income to calculate your profit (or loss).   If your business income is more than your business expenses, you pay tax on the difference (the profit).  If your business expenses are more than your business income, then you have a business loss. You would not have to pay any income tax on the business income, and you may be able to be carry the loss over to the next and following years. You may want to have a service do your taxes for you, but at this level, it is certainly something you could do yourself with some minimal consultations with an accountant." The point im trying to make is that VaR is useless as a risk metric and it should not be a necessary part of any risk management arsenal as it does little to answer the question that losses will be limited to X K% of the time and it instils a sense of false security. Here's an easy test...   Look at the investments in your portfolio and ask yourself whether if you had the cash value, would you buy those same investments today, because effectively that is what you are doing when you continue to hold. If the answer is no, sell and pick something else. Above all else, don't react to market swings, in most cases you are going to get it wrong and wind up losing more by making emotional decisions. "Since you did not treat the house as a QBU, you have to use USD as your functional currency.  To calculate capital gains, you need to calculate the USD value at the time of purchase using the exchange rate at the time of purchase and the USD value at the time of sale using the exchange rate at the time of sale.  The capital gain / loss is then the difference between the two.  This link describes it in more detail and provides some references: http://www.maximadvisors.com/2013/06/foreign-residence/ That link also discusses additional potential complications if you have a mortgage on the house. This link gives more detail on the court case referenced in the above link: http://www.uniset.ca/other/cs5/93F3d26.html The court cases references Rev. Rul 54-105.  This link from the IRS has some details from that (https://www.irs.gov/pub/irs-wd/0303021.pdf): Rev. Rul. 54-105, 1954-1 C.B. 12, states that for purposes of determining   gain, the basis and selling price of property acquired by a U.S. citizen living in a foreign country should be expressed in United States dollars at the rates of exchange prevailing as of the dates of purchase and sale of the property,   respectively. The text of this implies it is for U.S. citizen is living in a foreign country, but the court case makes it clear that it also applies in your scenario (house purchased while living abroad but now residing in the US): Appellants agree that the 453,374 pounds received for their residence should be translated into U.S. dollars at the $1.82 exchange rate prevailing at the date of sale. They argue, however, that the 343,147 pound adjusted cost basis of the residence, consisting of the 297,500 pound purchase price and the 45,647 pounds paid for capital improvements, likewise should be expressed in U.S. dollar terms as of the date of the sale. Appellants correctly state that, viewed “in the foreign currency in which it was transacted,” the purchase generated a 110,227 pound gain as of the date of the sale, which translates to approximately $200,000 at the $1.82 per pound exchange rate. ... However fair and reasonable their argument may be, it amounts to an untenable attempt to convert their “functional currency” from the U.S. dollar to the pound sterling. ... Under I.R.C. § 985(b)(1), use of a functional currency other than the U.S. dollar is restricted to qualified business units (""QBU""s). ... appellants correctly assert that their residence was purchased “for a pound-denominated value” while they were “living and working in a pound-denominated economy,” ... And since appellants concede that the purchase and sale of their residence was not carried out by a QBU, the district court properly rejected their plea to treat the pound as their functional currency." "Hello! I am working on a project where I am trying to determine the profit made by a vendor if they hold our funds for 5 days in order to collect the interest on those funds during that period before paying a third party.  Currently I am doing ""Amount x(Fed Funds Rate/365)x5"" but my output seems too low. Any advice?"