Inflation is a term thrown around a lot in the economy, but what does it actually mean?
This can be caused by various factors, such as an increase in the money supply, rapid economic growth, or rising oil prices. While inflation may not seem like a big deal, it can have serious consequences for individuals and businesses. In this blog post, we will look at five tips for surviving inflation in 2022.
A few facts about inflation.
The US annual inflation rate reached 8.5% in July of 2022. And it means that almost everything from your favorite chocolate bar to real estate is more expensive than it was 12 months ago.
The inflation rate in the United States is measured by the Consumer Price Index (CPI).
The inflation rate is the percentage change in the CPI from one month to the next. CPI data is released monthly by the Bureau of Labor Statistics. To understand inflation, we must first take a look at what causes it:
There are various reasons among them:
- An increase in the money supply;
- Rapid economic growth;
- Rising oil prices;
- A decrease in the supply of goods;
- Wars;
- An increase in taxes.
As you can see from the list, the current series of events, such as the pandemic, the war between Russia and Ukraine, the rapidly rising oil prices, and problems with supply chains, have caused the current jump in inflation.
In such a situation, most often, the wage increase does not keep pace with the rise in prices. So what can you do to avoid spending more than what you have in your bank account? Or even invest?
1. Strategy - Budgeting!
Budgeting is one of the most important things you can do to help offset inflation.
Start by taking a close look at your income and expenses. Determine what is necessary and what can be cut back on. Once you understand your budget, you can start looking for ways to save money. Perhaps among your expenses, some are not very important at the moment, and you can return to them in better times. There is also a chance that among the income, there are items that can be increased.
Be honest with yourself. You can write everything down in a notebook or keep a note on your phone. There are also many applications for managing your budgets, such as YNAB (You Need A Budget) or Goodbudget Budget Planner.
Real-life examples would be choosing to have a home-cooked lunch in a container rather than in a restaurant. If you're a coffee lover, double-check if your favorite coffee shop gives a discount for bringing your own mug.
This works for investors and traders to re-evaluate their portfolios. It may be worth abandoning very risky investments in favor of more stable companies or commodities.
2. Income. Can you think of something else?
Crises often breed innovation. Do you have a hobby that can bring you additional income? It can be anything - from making youtube videos to becoming a consultant in your field.
For example, if you're good at social media marketing. In this case, you can offer your services to small businesses that are just starting out and don't have the budget for a full-time employee.
Consider asking your current employer for a raise. For such a conversation, you have to prepare in advance but not be afraid of it. At worst, they will say no.
Currently, there are many platforms for selling things that collect dust on your shelves but can be very useful to someone.
Warren Buffett believes that for investors in such a period, it is worth looking at companies that can raise prices during periods of higher inflation. Why? Because it is able to offset its own increasing costs. He also thinks it is essential to watch companies with inflation-resistant products.
For example:
- Coca-Cola (KO)
- Johnson & Johnson (JNJ)
- Walgreens Boots Alliance (WBA)
- Procter & Gamble (PG)
Be sure to check whether the company pays dividends before buying its shares, as this can be a steady extra income. Some stocks can pay as much as a 10% dividend per year. In comparison, it is more common between 2-4%. Investment in stocks that pay dividends is also a way to offset some of the general risks in a falling market.
3. If possible - pay off your debts.
No one likes debts, but sometimes it's impossible to avoid them. Evaluate your wish list and postpone large purchases only possible on credit. For example, a new car, smartphone, or TV.
Re-evaluate your income one more time and see if not buying another bag, for example, can help you pay off some debt faster? The main thing is not to take new loans to pay off the old ones.
Do not be discouraged if you cannot pay off all debts immediately - any action in this direction will positively affect your finances in the future.
4. Energy and sustainability.
Refer to the philosophy of sustainability. Give preference to higher quality products that will last you longer. Thus, you will save money.
When leaving the house for a long time, ensure you turn off electrical appliances that are not needed in your absence. This will help you save on electricity bills.
Reduce fuel consumption. This can be done by a well-thought-out daily route. And if you think over your menu for a week well, you can reduce the number of unnecessary purchases and go to the store only 2-3 times a month, and not every day.
If your health and abilities allow, periodically use a bicycle or public transport. Such steps will be good for your wallet and help make the environment a little cleaner.
If you're an investor, it's not a bad idea to look at energy companies at the moment (and not just oil and gas companies, but alternative energy companies as well). And also, find those companies that advocate sustainability and produce reusable goods.
5. Revising Strategies.
Remember, investing in yourself is still vital by saving for the future. Many people think inflation will devalue their savings, but this is not always true.
You should still have an emergency fund to cover at least 3-6 months of living expenses. In case you lose your job or face other unexpected financial difficulties.
If you have a retirement account, consider whether you need to make any changes. For example, if you are close to retirement, you may want to move some of your money into less volatile investments.
Inflation can also have a positive impact on investments. If you invest in stocks, for example, companies that can increase prices during periods of inflation will do better than those that cannot.
A few words in the end.
For most people, inflation can be a hard battle, but with a strategy, it is much easier to fight it. Control everything you can control. Even if the changes are small, they will already be a good step towards a better future.
Thank you for reading! Stay tuned for more.
