- Date : 10/02/2023
- Read: 3 mins
It is vital to stay ahead of the game and beat inflation before it beats you. These four steps can help you protect yourself from inflation and live a financially comfortable life without compromises.
Inflation refers to the increase in the price of goods and services in a country over a period of time. When prices increase, the purchasing power of money falls, and you are able to buy fewer things for the same amount of money. Inflation in 2023 is likely to be a concern, and it is better to prepare and protect yourself from it than fall victim. Here are some money management tips that can help.
4 Steps to guard against inflation
1. Monitor your savings and spending
Your budget can go for a toss when prices increase. It is crucial to track your spending at this time and reduce unnecessary and avoidable expenses. You can either eliminate some costs or find cheaper alternatives. Further, try to increase your savings. The more you save, the more money you will have in your emergency fund. Remember, inflation affects all sectors, including healthcare. A financial crisis, such as a health issue, can be challenging to deal with during an inflationary period. However, your savings can come to your rescue.
2. Focus on long-term investments
Long-term investments are less volatile as they are not affected by short-term market fluctuations. As a result, they are able to deliver inflation-beating returns. Historically, financial markets have performed better than inflation in the long run. So, try to keep a long investment horizon and avoid the urge to withdraw your money at frequent intervals.
3. Avoid parking money in savings accounts
Savings accounts offer a low rate of interest that is unable to counter inflation. When compared to the inflation rate, you lose more money than you earn on these accounts. So, be smart about what you do with your savings. Do not let your money sit idle in a savings account when it can actually earn you more money.
4. Invest in high-yield investments
High-yield investments such as stocks, equity mutual funds, etc., can offer inflation-beating returns. These can be ideal to ensure that the value of your money does not deplete over time. However, keep in mind that most of these are high-risk. So, it is essential to assess your risk appetite and then make a decision. Further, you can lower risk by investing in such instruments for the long term. It also helps to keep a diversified portfolio that includes high- and low-risk options to balance out risk and reward and yet earn in tandem with inflation.
Impact of inflation on investors
Inflation can wreak havoc on your personal finance goals. Inflation may be beyond your control, but you can take the measures mentioned above to ensure control over your money and future goals. When prices seem to rise, your focus must change from spending to saving. It can help to restrict your budget and think of the future. Moreover, you must invest the money you save to ensure it keeps growing and does not sit idle.