Inflation literally makes us all poorer by eroding the value of our money. The problems we have been facing in the two-and-a-half years due to the pandemic has made matters worse, as we have find ways to deal with inflation.
As the cost of living continue to rise, what should we prioritize when it comes to our monetary budget? Will we have to retire later? Do we have to change our children’s tertiary education plans?
In a Facebook livestream on 7 September 2022, conducted in conjunction with World Financial Planning Day 2022 (WFPD2022) by SmartFinance (SmartFinance.my) with the support of the Financial Planning Association of Malaysia (FPAM), Rajen Devadason, a licensed financial planner, offers some strategies we can use to deal with inflation.
Here is his tips on how to deal with inflation:
1. If You Don’t Have A Budget, Please Create One
If a budget only exists in your head, you are strongly urged to have it written down, whether on paper or as lined items on a spreadsheet. Getting the tactile sensation of writing things down will get you more invested in the numbers and provide you with a road map of your finances.
2. Prioritize Nourishment
When it comes to budgeting for yourself and your family, do not compromise on nutrition. Make sure nutritious food that meets caloric content is taken care of and no one goes hungry. Everything else can be set aside.
3. If It Possible To Accelerate The Repayment Of Debt, You Are Advised To Do So
Many of us have debt that flow. So, when interest rates rise, the cost of our borrowings will go up. One way to deal with inflation is to pay down debt you can, as fast as you possibly can.
Each time you get rid of a liability to your name, the monthly repayment disappears for life (unless you take on an equivalent loan). This will clear up additional cash flow, give you a breathing room and let you do more with your money in an inflationary environment.
4. Exercise Delayed Gratification
Used to changing cars every 5 years or going on two overseas vacation a year? Don’t be too quick to spend your earning on the things you want.
You are likely to have surplus money to save up if you can cut back on some luxuries, until your financial goals are met. Delayed gratification is another way to deal with inflation.
5. Work Harder, Work Longer, Bring In More Money, And Tighten Your Belt Like You Have Never Done Before
Unless you wish to stay poor, you cannot stay static. Most of us can only improve on our situation by working harder, and then by working smarter. If you are not earning enough, get a second or third stream of income. One of the saving graces is internet connection is now better than 5 years ago, which enables anyone with online access to participate in the gig economy and earn a side income.
For those who are under the age of 35 and in good health, you’ve got more energy; your youth, stamina and vigor will give you the ability to work beyond your normal 40-hour work week, if you are willing to pay the price.
6. Save And Invest More
Saving and investing are two different things. We save for peace of mind, knowing we will be able to deal with emergencies. Meanwhile, we choose to invest to try – though without guarantees – to beat taxes and inflation. If you have been successful, you have grown your money faster than taxes eats into it and faster also than inflation.
With so much going on in the world; the pandemic, geopolitical conflict, economic crisis etc, there is tremendous volatility, especially for the riskier investment spaces. Nevertheless, volatility is the friend of the long-term, life-long, consistent investor and saver.
As such, those who are wise enough to work harder, rework their budget, build up their surpluses, pay down debt, exercise delayed gratification, and try to save even though it’s very tough. Rajen’s advice is to take advantage of dollar cost averaging.
To stand to benefit in the long-term, invest in a manner that meets five specific criteria:
- Invest in an asset of high quality (that are good hedges against inflation)
- That asset should fluctuate in price
- Invest in equal amounts
- Invest at regular intervals
- Invest regardless of market conditions
Finally, never put all your eggs in one basket. Diversify your investment across three distinct dimensions: diversify across different asset classes, different geographic regions, and over a very long timeline.
6 Ways To Deal With Inflation
There you go with 6 ways to deal with inflation that you can start implementing in your daily life. It might not be easy, but it will be worth it in the end.