Beat the inflation with these simple steps
Dear Friends,
As we are greatly face the impact of the inflation all around the world, we must execute various calculative actions to beat the inflation and to safeguard ourselves.
Let’s discuss various ways in which we can explore on this.
- Budget and spend
When the rate of inflation is high, the prices of goods are also high. Therefore, it is very essential to make a budget and spend only on essential needs. A family budget is the only way to indicate exactly where the family's income is going. Through this, it is clear how much unnecessary expenses are being incurred on. Avoiding such wasteful expenditure can certainly increase savings; Financial goals can be met properly.
- Please Avoid Loans:
During periods of high inflation, interest rates on loans are higher. As the rate of inflation in every country was high, the respective central banks kept increasing the interest rate to bring it under control. As a result, the home loan interest rate, which was around 7 percent in the past, has increased to almost 9.5 percent. Similarly, interest on car loans and personal loans has also been increased. Therefore, during the period of high inflation rate, avoid buying unnecessary loans, especially credit card loans (annual interest 35% - 45%), personal loans (annual interest 16% - 22%).
If the interest on the already variable rate loan has increased and is now high, it is better to reduce the debt burden by paying an additional amount apart from the monthly installments wherever if possible. That too, paying off high-interest credit card and personal loans quickly can significantly reduce interest costs. Also, it is important to avoid taking new loans as much as possible.
- Explore the Investments that give returns higher than the inflation rate:
In times of high inflation rate it is necessary to invest in schemes that give higher returns than the rate of inflation. Due to the rate of inflation, i.e. the rise in prices, the value of money decreases. If the rate of inflation is 7%, if a product costs USD 100 this year, it will sell for USD 107 next year. In this scenario, the return on investment is 3% - 4% higher than the rate of inflation after income tax. In that sense, long-term investments should be made in various investment instruments as per your capacity/ risk appetite and ensure these are risk-diversified.
- Set your financial goals
Please set short-term, medium-term and long-term financial goals for your life. When you do that, all the money you have at your disposal will go towards wiser investing. By doing this, wasteful expenditure can be significantly be avoided during periods of high prices. Plan to pay off high-interest loans first in short-term goals.
- Try to increase income
Costs can only be controlled to a certain extent. As prices increased/ tend to increase so much, the most essential expenses such as food and medicine cannot be reduced and avoided. Therefore, efforts can be made significantly to increase your income. Explore the possibility of multiple income streams. See if there is an opportunity for additional income through the company you are currently working for. Also, there are opportunities to increase the salary in the current company by increasing some special qualifications.
If you think a little about how to generate income, you will see hundreds of ways to do so!
- Increase your investment amount
If the rate of inflation is high, the financial position can be properly managed only by increasing the amount of investment. Let us see this through an example. A 30-year-old working husband and wife currently have a monthly expenditure of USD 50,000 including house rent. Retirement at 60. Let's assume that the couple lives up to 80 years. If the rate of inflation averages 5% per annum, a monthly household expenditure of USD 50,000 today would have increased to USD 216,000 in 30 years. Assuming 12% p.a. return on investment during working period and 8% p.a. return on lump sum fund during retirement, they have only 30.9 million USD pool fund to manage the situation. To accumulate this amount, you have to invest USD 134.54per month for 30 years. If it is a one time investment then you have to invest USD 15756.66.
Therefore, if the rate of inflation is high, it is necessary to invest accordingly to meet your financial goals properly.
Strategies such as proper budgeting, avoiding debt, building an emergency fund and setting financial goals can be much beneficial in times of high inflation.
Make sure that simple adjustments to beat the inflation!
-This post first published on publish0x.
