Inflation can damage our spending capacity as things start to cost more and the money that we have at hand becomes less valuable. While it causes a lot of damage on its way, the inflationary scenario is also a time when investors and savers can rework their strategies. A high inflation period, like the current one, forces us to find out unique ways of handling our finances such that the value of existing personal funds can be protected.
From a broad economic perspective, we can rely on the government to deal with inflation by increasing the interest rate. However, as the cost of borrowing rises, the impact starts trickling down to our daily needs, such as consumer products that become expensive before we realise it. No one can say for sure what the future holds. Hence, it may be difficult to gauge when inflation starts turning away. However, to deal with it while it is present, we can change aspects like how we spend and where we park the funds. Here are some smart ways of managing your expenses during rising inflation periods.
Tip 1 : Check where you spend
By this, we mean not just cutting down on your spending but also looking for alternatives to big-ticket spending. For instance, in the age of OTT, we often ignore the fact that we may be paying for subscriptions that are rarely being used. Cutting down on such spending can save a significant sum in the long run. Being creative with daily spending can also help beat inflation to a certain extent.
If you are planning to buy a home, it makes sense to wait off until you are sure of buffer finances for the future. Same goes with other large spendings like car or going on a foreign holiday.
Tip 2 : Look for cheaper substitutes
With inflation, prices rise and make it difficult for you to repeat previously made purchases at the same cost. In such situations, check for ways to cut down on the cost by looking for alternatives or bulk buying. For instance, since petrol prices are currently sky high, you can opt for carpooling to save on the cost of travelling to work. Opting for less expensive or non-branded stores can also help save on the overall cost.
Tip 3 :Spend as per a budget plan
Budgeting helps with streamlining current spending to improve chances of achieving future financial goals. It helps minimise the overall impact of inflation on an individual’s income. During high inflation periods, following a budget will ensure that you spend less and, more importantly, take out the ‘nice-to-have’s’ off the list.
For instance, if you are walking on a budget, you would avoid spending on game zones in mall arenas or work out at your apartment gym instead of having a gym membership outside.
Tip 4: Focus on investment rather than spending
As we see prices rising rapidly, it should be taken as a reality check, especially where we falter in money management. During inflation, apart from focusing on savings by spending less, you must also focus on investing your money. Although an individual cannot have any control over economic conditions, he/she can continue to appropriately manage personal finances. Therefore, consider making investments in avenues that are able to handle inflationary environments. Often, people use tangible assets like real estate and commodities to hedge against inflation.
Before you begin investing your hard-earned money to beat inflation, you must understand your spending habits. Start adjusting your spending patterns to ensure that you have sufficient money left to be invested. This will also help you gauge whether you can invest a lump sum amount or go the SIP route.
Conclusion
We are all dealing with inflation that has resulted in higher cost of living. In such situations, it’s important to stay focused on our financial priorities. Avoiding excessive use of credit cards, accumulating too much debt, etc. are habits that will worsen the impact of inflation on our finances. Therefore, continue to save more and park money in ideal investment avenues.
FAQs
High inflation can result in economic slowdown, whereas moderate inflation levels can actually help an economy come out of deflation.
Credit cards are a type of debt that can adversely impact financial planning during high inflation. This is, if credit card usage is not controlled or well-planned.
Real estate prices often tend to rise during high inflation. Therefore, if you can invest in one without taking on high debt and during moderate information, it may prove financially helpful in dealing with high inflation situations.
Gold is often used by investors as a hedge against inflation. During high inflation, the prices of gold tend to rise. However, in recent years, domestic gold prices are increasingly being impacted by global prices and the rupee exchange rate, thereby limiting the impact of inflation.
Moderate inflation is often considered beneficial for an economy that is undergoing deflation. It can help in economic revival.
