Have you noticed that when buying groceries from the market, you are paying more money than the previous time for the same amount of goods? Or that you’re paying more in electricity bills for the same amount of energy consumed as last year?
The reason prices keep on getting higher is due to inflation. Uncertain market conditions brought on by the Covid-19 impacts have caused inflation to spike worldwide.
High inflation makes surviving tough for the common man. Incomes are stagnant, but expenses are out of control. When fuel and food inflation is rampant, it becomes harder for the common man to make a living.
In this article, we will explore the ways in which you can save your money from inflation.
Table of Contents
Careful Evaluation of Personal Budget:
During inflation, the key is to monitor your expenditures carefully and look for different ways of reducing cash outflows. Consider refinancing your loans, combining debts for lower rates, and paying off your debts altogether.
One of the ways you can maximize your capital is to invest it in your own education, which will arm you with the skills you will need to make it in the tough competitive world of business and finance.
Many online organizations can help you with your studies in preparing for your tests, and the comparisons are mostly restricted to Wiley vs. Becker, two well-known test-preparation resources. So, if you are an aspiring CPA but cannot choose between those two, the link provided can help you identify the right choice for you. Your education equips you with skills that will insulate you from market inflation as you’ll be employable or even run a thriving business despite the mounting inflation.
Investing in Invaluable items:
The other way to improve insulation from inflation is to invest in things that are not easily duplicated. For example, you can invest in real estate, gold, or even unique items collection, like limited edition baseball cards. These investments usually secure your money from devaluing and perform pretty well despite the inflation.
Investments Allocation:
It is always better to consult with an advisor to ensure you have the right investment allocation mix to safeguard you from losing value on all your investments during high inflation.
For example, consider a moderate 40% fixed income and a 60% equities asset allocation. If you have income from a job, consider moving a portion of that into dividend-paying stocks at the start of each month. Stocks do well when compared with bonds during inflations.
Always create an investment mix:
A well-known saying is, “Do not put all your eggs in one basket.” The idea is to create a diversified investment portfolio. Some investments can go up with inflation, while others may go into losses. The aim is to diversify your portfolio so that if one of your investments incurs losses, the others are safe.
Go for investment in short & midterm accounts:
When there is inflation, it is better to go for short-term and mid-term fixed accounts, such as two to five-year fixed annuities. You can get up to 3% fixed returns from investing in a short to mid-term annuity.
Investing in Growth Assets:
You can save your money by investing in growth assets. Instead of putting your money in a savings account, go for a diversified approach with different assets. The idea behind it is that investments should grow even during inflations. So, consider investments in equities, real estate, and other assets that appreciate over time.
Increasing your active & passive income:
Make plans for increasing your active & passive incomes during inflations. If you aren’t prepared for it, inflation can hit you financially.
If you can grow your income faster than the inflation rate can catch up, you will have a better chance to thrive. Look for the right investment opportunities or skills that you can employ to generate more income. Freelancing is a potential option for increasing income.
Investment Opportunities:
The best way to move forward during high inflation is to turn risks into opportunities and make sound investments.
So here are a few areas you can invest your money in.
1. Treasury Inflation-Protected Securities (TIPS):
It’s easier than it sounds. TIPS are government-issued investment bonds that cover inflation. TIPS can help you protect your wealth from the rising inflationary rates. You can invest in TIPS in mutual funds, bonds, or ETFs.
2. Cash Investments:
The Covid-19 pandemic has proved how unpredictable economies are. Therefore, financial advisors suggest keeping cash in high-return savings accounts, money market accounts, or CDs. Cash savings of 6 to 9 months are required for single-income households, whereas six months of cash savings are the recommended amount for two-income households.
3. Investing in a house:
People might not think of investing in a house as any buffer against inflation, but if you are using the mortgage option in buying a home, the low rates that come along with it can help you a great deal.
4. Stocks:
Investing in stocks can be an excellent long-term investment option during inflation. However, not all stocks are created equal. You have to look for stable companies that could do well, even in inflations. If stocks are too risky for you or you don’t possess the required knowledge, consider investing in mutual funds, which are relatively a lot less risky and provide stable returns.
5. Gold:
Historically, gold is considered a safe asset for investment. Gold tends to fare well even when interest rates go negative, and inflation rises exponentially. Usually, investors often view gold as a good asset during tough economic conditions.
You can invest in gold through the Exchange-traded fund (ETF). You don’t have to actively managed ETF list or personally own gold through ETFs to reap its wealth-insulating benefits. All you have to do is invest in gold stocks of other miners.
Bottom line:
High inflation depreciates our assets, diminishes the value of our wealth, and leaves you shortchanged of your hard-earned money. The above-mentioned tips will help you survive high inflation and protect your wealth.
Featured Photo by Karolina Grabowska from Pexels
