How To Cope With Inflation While Managing Personal Finances

Inflation is an economic phenomenon that occurs every few decades, impacting all the domains of financial infrastructure, and its effect on personal finance may go unnoticed at times, but it is substantial. According to last year’s reports, inflation stood at the rate of 8.5% in March 2022, the highest in the past forty years. Reasons can be any, ranging from political instability on the global scale, international conflicts, supply-chain bottlenecks, etc., but what matters is that we keep ourselves updated and equipped with sufficient knowledge to secure our financial future.

This blog post will explore the nuances of financial planning to comprehend the potential solutions to curb the growing menace of inflation, as the diminishing value of our hard-earned money can lead to difficulty in the affordability of our essential commodities, let alone living our dream lifestyle. To protect our finances against growing inflation, and prosper financially amid a shrinking economy, we need to understand the deep-level damage inflation does.

Commonly termed a “sneaky thief,” inflation erodes the value of our hard-earned money, which means the cost you incur to buy daily necessities will increase substantially. Therefore, your common expenses, like groceries, healthcare, and housing maintenance, skyrocket, leaving you struggling to maintain a decent standard of living.

Savings also go for a toss in situations like this because we tend to pull the deficit funds accumulated over time. If our saving is not increasing at a higher rate than inflation, it means our purpose of saving those funds won’t be served, be it purchasing a home, education, planning for retirement, etc. 

Soaring interest rates make borrowing more expensive as all the national and international banks increase their interest rates. It can be financially draining, especially if someone looks forward to implementing robust wealth management strategies like debt consolidation, maintaining emergency funds, tax implications, budget alignment, etc.

How to invest wisely?

Investment planning sets the stage for your future financial endeavors because, with time, as your investment is ripe and starts yielding the desired results, it feels like conquering one battle at a time. Investment means putting your money to work to yield more by increasing the value of different asset classes. Through these techniques, only one can outpace inflation.

Understanding outpacing of inflation – consider a scenario where inflation increases annually with a percentage of 2-3, and your accumulated money is sitting ideally in some low-interest savings accounts or packed in bundles under the mattress. Eventually, this money will be left undervalued because of its decreasing purchasing power, but if invested correctly in high-interest investments that also promise inflation-beating returns. Your preserved money will do wonders by increasing their purchasing power manifold. That is what compounding does to your savings. Hence, long-term goal planning is impossible without a concrete roadmap of robust investment strategies.

Navigating inflation with financial literacy is doable for individuals from all income levels, as comprehensive financial literacy knowledge provides us with skills and insights to tackle economic challenges effectively. Approaching a certified financial planner or an advisor is always an available option, but moving ahead with having a sound understanding of inflation and implementing free budgeting and expense management tools can serve as great starters.