5 Strategies to Help you Cope with Inflation

Anyone buying groceries or a cup of coffee or a car has noticed that prices are increasing. Just like death and taxes, inflation is one of the other phenomena we cannot avoid.

What is inflation?

Inflation is the overall decline in the value of money. It whittles away the value, making each dollar worth less and less over a period of time. Here’s a hypothetical example: earning 2% interest on a savings account while the inflation rate in your country is 5% may make you feel 2% richer when in fact, you’re 3% poorer. That’s why it’s important to understand the causes and effects of inflation so that you can cushion yourself as much as possible.

Governments measure inflation using the consumer price index (CPI) which is calculated by putting together a theoretical basket of goods and services a typical consumer is likely to buy. This might include discretionary costs like rent, groceries, transportation, etc. and the weighted average cost of all these items is the CPI.

How can you protect yourself from Inflation?

1.       Reassess your budget

Add together all your income from all sources e.g., employment, rental, side hustle, pension, etc.

List all your expenses, dividing them into two categories:

·       Needs – all essential or discretionary costs like rent, mortgage, utilities, etc.

·       Wants – all non-essential or non-discretionary costs like eating out /takeout, coffee shop coffee

Depending on how financially literate you are, make your budget as basic or as detailed as possible. If you’re just starting off and are working towards improving your relationship with money, a detailed budget would be more helpful so that you have full visibility of where every dollar is going. Reassess your budget every month if you’re just starting off or every 3 months if you feel like things are beginning to be in control. This helps in making sure that your budget is working to help you meet your short-term and long-term goals.

2.       Restructure your debt

Debt restructuring is a proposal made by creditors to have you repay debts on different terms than you originally agreed and on terms that are more affordable to you. Too much debt can negatively affect your lifestyle especially when inflation is on the rise. Having a clear plan on how you will manage your repayments can lower your monthly payments, help you get out of debt quickly, and take control over your finances.

·       Consolidating your debt – Some creditors offer an option to consolidate all your loans and credit card debts to take advantage of a lower interest rate. This new loan umbrella might be a secured or unsecured line of credit or a new loan to provide one monthly payment option instead of multiple ones which can help reduce stress and give you a better quality of life.

·       Switching to a lower interest credit card – Negotiate with your credit card company for lower rates if you have a high credit card debt. If you like the perks that come with your credit card and you’d like to keep using it, negotiate for lower rates instead. Better still, if you’ve had the card for a long time, leverage your loyalty during the negotiation call

 3.       Consider delaying major purchases

Assuming you can, delay your upcoming car or appliances upgrades.  Covid-19 has caused economic headwinds like supply chain disruptions, chip shortages, pallets shortages, expensive labor, etc. all of which have contributed to the inflation we’re experiencing. With restrictions easing up and economies reopening, these disruptions are expected to ease in the next year or so. This should help reduce the prices of a wide range of consumer goods.

 4.       Negotiate better rates on your everyday expenses

Cable, internet, cell phone plans, credit card interest, etc. are some of the bills you can negotiate to cushion yourself against rising prices in other areas. There’s always no harm in asking and if you find the vendor is not willing to reduce the price, switch to a competitor. Some service providers will bundle up your services to give more value. If the bundled-up item/service is something you’d have purchased separately, consider this as a discount instead of just thinking about a money discount.

 The bottom line

Inflation, just like death and taxes is unavoidable, and having to pay more for your daily expenses with a static income sucks. Employ the tips we’ve shared above and don’t hesitate to ask a Topspin Finance money coach if you have any questions.

How are you managing inflation wherever you are?