Lions and tigers and bears, oh my -- or should we be saying inflation and interest rates and employment, oh my? What the munchkins were to Dorothy is similar to what the economy is to your wallet -- a guide that helps you determine the "yellow brick" road to take. But, what exactly are these factors and how can they affect your journey?

Inflation
When there is too much money in circulation and not enough goods and services to spend it on, demand will increase, prices will rise, and the result is inflation. If the inflation rate is high, you may find that your income can't keep up with price increases. Those hardest hit by inflation are retirees and others who live on fixed incomes.

Lower inflation is better for the economy because when more products are purchased, companies will produce and sell more. As a result, their profits may rise, stock prices may climb and they may look to hire more employees.

However, if inflation goes too low -- deflation -- consumers may delay purchasing items in hopes that the prices will fall even more. This can reduce demand for goods and services, resulting in a situation similar to high inflation.

	You may be able to lessen the impact of inflation by investing your savings in stocks, bonds and mutual funds.

Interest rates
When the rate of inflation rises, interest rates are directly affected. Investors demand higher interest rates for their savings or investments, so that the value of money invested will at least keep pace with costs.

The Federal Reserve, or the Fed, raises and lowers interest rates in an attempt to control inflation. Lower rates stimulate the economy because it becomes cheaper to borrow money. As a result, consumers can spend more and companies will produce and sell more. If the Fed believes that spending will lead to inflation, it will increase interest rates in order to decrease spending.

Employment
Low unemployment means that more people are working; thus, they have more money to spend, which stimulates the economy.

However, low unemployment can hurt the economy because when companies have trouble finding qualified workers, salaries may need to be raised, which could lead companies to achieve lower profits and increase their prices to compensate for the decrease.

How can you lessen the impact of inflation on your wallet? By investing your savings in stocks, bonds or mutual funds, your money can provide companies the capital they need to prosper. Not only will these companies benefit, but you can create a strong financial foundation for yourself and your family.