You may have heard the term inflation thrown around in political and financial news without having a comprehensive idea of what it’s all about. In one way or the other, you may have noticed an increase in the price of goods and you may wonder what might have caused it.
Your dollar doesn’t buy as much as it used to buy before, in essence, and your purchasing power is decreasing. It’s all inflation. That’s what inflation does to you.
What is inflation one may ask?
Inflation in Economics is the decrease in the value of money that is caused by the increase in the quantity of money, leading to a devaluation of existing money. It is also an increase in the general level of prices in the cost of living.
The general public, especially the investors worry about inflation because it shrinks their purchasing power. What appears to be a positive return turns into a negative one once inflation sets.
An investment return that yields 5 percent interest yearly may seem like a good investment until inflation sets in and reaches 7 percent. You know what that means right? Your investment return goes negative.
Now, one will not be able to avoid inflation outrightly as it has become a part of the Economy. But there are some things to consider for you to be able to minimize the effect of inflation on your finances – get to know the type of inflation you are going through, whether it’s short-lived or the inflation that lasts over a long period of time.
Once you are able to determine the type of inflation you are facing, minimizing its effect will be made a lot easier.
Here are 12 Pro Tips to Surviving Inflation:
1. Create an Emergency Fund:
An emergency fund is money that you set aside for the sole purpose of using it to tackle unexpected expenses. It is meant for an unplanned situation like inflation. For you to survive high inflation, you need to have an ample emergency fund.
An emergency fund may not protect you entirely from inflation, but can help you get ready for additional expenses should inflation pushes you over budget.
Always have it at the back of your mind that the economy can slump at any time and when that happens, you will need something to fall back to.
Inflation is something you can’t predict when it will set in or when it will be over, so it is profitable that you set aside some cash that may last for about six months or more.
The emergency fund gives you the breathing space you need until you make some changes in your budget plan.
2. Re-Visit your Budget:
With the increase in inflation, it is advisable that you revisit your budget and make some adjustments. The adjustment may be temporary, depending on the time the high inflation will be contained.
The adjustment will help you through the period of high inflation as inflation, obviously, will affect the cost of everyday items.
Revisiting your budget plan should be an intentional act where you account for your spending and changes in price. It shouldn’t be neglected as inflation will definitely affect your budgeting.
The amount you budgeted for when the economy was normal will definitely spike up during inflation, so the need to revisit and make some adjustments in the budget.
3. ReConsider Large Expenses:
This is where you consider the short-term or long-term inflation. If you have set up a plan to venture into large projects or to make a huge purchase, like renovating of house, building a house, buying a new car, or making a huge investment, consider how inflation may affect the cost of those things.
The inflation may be short-term or longer-term. Find out the kind of inflation the economy is going through and know what your next step will be. It will be worth the wait if the inflation is short-term, but if the inflation will be longer-term, you can go on with your plans if you wish to do so.
4. Ask for a Raise
During inflation, the value of the dollar decreases while the value of commodities increases. Salary earners are disadvantaged because of this. They tend to spend more than they earn, so asking for a raise wouldn’t be a bad idea.
It will help you keep up with the cost of living as you bring in more money each month. The raise given to you will cover up the increment caused by the inflation.
Also, without asking for a raise, there are some companies that increase wages overtime in an effort to meet up with changes to the cost of living. So during inflation, you can look for companies that can increase your wages if the company you work for does not operate like that.
But be sure to find out if your company runs such a policy. If they do, check with your employer before asking for an increment in wage.
5. Have a Different Investment Portfolio:
It has been said that the great way to plan and have a successful financial life is by investing. And do you know that there are investments and assets that appreciate during inflation?
It is important that you prepare yourself for any change in the economy. That’s where investment comes in. As you do not know what the situation of the economy will be like in the nearest future, it is essential that you get yourself prepared for what may come – this is where investment comes into play.
Do not invest for investing sake, invest with a purpose. Invest in assets that appreciate over a period of time, as it is a great way to fight and contain inflation.
If you have a good investment portfolio, one that appreciates during inflation, it is certain that your dollar will outpace inflation. One good investment that outpaces inflation is real estate. This is because inflation causes the value of the property and rent to rise. Homeowners and landlords stand to benefit from this.
6. Invest in Yourself and Be the Best at what you do:
Most people are ignorant of the fact that investing in your own talent is one of the best ways to retain your purchasing power during inflation. Building up your résumé by learning new skills as much as you want can give you an edge over inflation.
As the best lawyer or teacher in a city, you stand to benefit when you charge for services rendered in the current value of the dollars. Remember that you acquired that skill from an education paid for in the previous value of the dollars.
Once you have learned a skill or educated yourself to be the best in what you do, it stays and becomes part of you. This will help you in charging the price of your service as you do not have to re-educate yourself again.
7. Limit your Want:
It is said that human wants are insatiable. Every person has unlimited wants, but the problem is that the resources are limited. For that, you cannot have everything you want. What you need to do is look out for affordable alternatives.
Remember that your wants are different from your needs. Your needs are those things necessary for survival like food and shelter, while your wants are simply those things you would like to have.
During inflation, you can hold off some of your wants and focus on basic needs. When inflation is over, you can go on with your normal life. This method will sure save you from being stressed financially.
8. Avoid Making Drastic Decisions:
During inflation, do not be in a haste to make any drastic decision. Be careful not to make drastic changes in your budgeting plan because of the current inflation or changes in the market. This is because inflation may be short-term or long-term.
Selling of your investments and assets during inflation may backfire as you may not know if the inflation is short-term or long-term.
It is advisable that you first determine the type of inflation the economy is going through and have a clear view of the long-term trend, before making any major decision.
9. Increase your Active and Passive Income:
Firstly, you have to understand what active and passive income is.
Passive income is the money you are earning as a result of an investment done or work completed in the past. That investment or work done continues to yield money without any other additional effort.
Active income is the money you earn in exchange for a service you are rendering. An active income can be earned hourly, weekly, or monthly as the case may be. Examples of active income are salaries, commissions, tips, hourly wages, etc.
During inflation, you can increase your active and passive income at a rate greater than inflation. If the rate of inflation is close to 5% yearly, you need to increase your income with the rate that will outpace it.
10. Buy Food in Bulk and Eat Less Outside:
Half of our incomes are spent more on food. But when you buy food in bulk, you tend to save and cut down expenses. This should be put into practical use during inflation.
Eating less outside is another factor that will help you survive high inflation. We tend to spend a lot of money eating outside without even knowing it.
Most of us are ignorant of the fact that the amount of money we spend on eating outside could actually be used to prepare many of the meals at home and still have some balance left.
During inflation, buy food in bulk, prepare the meal and eat in the house. Avoid eating outside entirely as the case may be until the inflation is over.
11. Negotiate for Lower Prices:
Commodities can be negotiated in order to deal with higher prices. When shopping during inflation, build a relationship with the salesperson first. With the relationship, you can ask if there are discounts you qualify for.
This shouldn’t be a problem or a big deal for anyone that wants to survive high inflation in the economy, because you may get lucky and get the commodities at a lower rate.
Sometimes, consumers who ask for a lower rate are usually successful and it gives them an edge over high inflation.
12. Get a Side Job
Getting a side job will help you supplement your income during the period of inflation. This side job could be something you know how to do, your hubby, or your passion.
You could get paid for doing what you love be it drawing, acting, dancing, writing, etc.
There is an online marketplace that makes it easy for you to get paid doing what you love. All you need to do is to create a profile stating what you are offering and people that need what you are offering will come looking for you.
Once you are keeping up with the demands and getting positive reviews, you can increase the price of your services and earn even more. With that extra cash, you are sure that surviving high inflation is possible.
Florence is a personal finance writer, who is passionate about helping others attain financial freedom. She covers topics from side hustles and debt payoff to investment and retirement.