Inflation has become a hot-button issue in recent months. It’s a problem that generally affects everyone, but there are ways to protect yourself against it. In this blog post, we’ll offer some practical tips to help you keep your finances healthy in the face of inflation.
What is Inflation?
Inflation is the rate at which the prices of goods and services increase over time. In other words, it’s the amount of money you need to spend to buy the same amount of goods and services as you could have bought last year.
Inflation affects daily modern life in a few different ways. For one, it affects how much money you need to spend to buy the things you want or need. If the prices of goods and services rise faster than your income, you’ll have a harder time making ends meet.
Additionally, inflation can erode the value of your savings. If you have $100 saved up and inflation is 3%, then a year from now you’ll only be able to buy $97 worth of goods and services with that $100.
Why Is Inflation an Issue in 2022
You’re correct if you guessed it had something to do with the coronavirus pandemic. The current high inflation rates are due to a number of factors, the most important of which is supply and demand.
Many people lost their employment or had their work hours curtailed when the pandemic hit in 2020, and they had to be cautious with their spending. Consumers now have more money available and are more likely to spend it thanks to a stronger job market and stimulus programs that put money in people’s hands. When demand for a product grows, supply shrinks, and corporations raise their prices to compensate.
Hope is not lost. There are a few things you can do to fight inflation.
Tips to Protect Yourself from Inflation
As a consumer, there are several things you can do to guard yourself against inflation:
Adjust Your Personal Budget
If inflation is increasing, then the prices of goods and services are rising. This can impact on your monthly budget because you may need to spend more money to purchase the same items. To combat inflation, you may need to adjust your budget by increasing your income or by cutting back on your spending.
As a first step, make sure you know where price increases are taking a toll on your budget and budget around (if you can) those inflationary items. Perhaps if you need a new car and car prices have risen due to inflation do your best to wait until prices or your income have adjusted for inflation before purchasing a new car.
Maintain a Healthy Emergency Fund
Inflation is one of those things that can sneak up on you if you’re not careful. All of a sudden, the things you used to be able to afford are now out of your price range. This is why it’s so important to have a healthy emergency fund.
If you don’t have an emergency fund, high inflation will make creating one difficult. However, check our blog post on how to create an emergency fund in 3 easy steps.
- For starters, you should aim to save $1,000 in your emergency fund. In our modern world, it’s rare that you’ll need more than $1,000 for a quick emergency. Plumbing problems or a trip to the emergency clinic can be a few hundred dollars.
- Next, you’ll want to aim to save about three months of expenses. If you lose your job or your spouse’s hours get reduced, you’ll need money to continue paying your bills.
If you have a buffer of cash saved up, you’ll be able to weather any inflationary storm that comes your way. You’ll be able to keep up with the rising prices and maintain your standard of living.
Without an emergency fund, you’ll be forced to make tough choices when inflation hits. Do you cut back on your spending or do you go into debt just to keep up? Neither option is particularly desirable.
So do yourself a favor and start saving for a rainy day. It could end up being the best decision you ever made.
Invest in Yourself Through Education
Investing in yourself is one of the most important things to protect against inflation. By continuing your education, you are ensuring that you are keeping up with the changing economy and keeping your professional skills relevant. Individuals who invest in themselves generally stay ahead of the curve and keep their income high.
Additionally, continuing education shows employers that you are dedicated to your career and are always looking for ways to improve. This can help you get promotions and raises, which will help you keep up with the rising cost of living.
It’s a difficult conversation to have with your employer, but you shouldn’t be afraid to ask for a raise. Have you taken on additional tasks at work? Are you filling in for coworkers who have left? Are you succeeding in achieving your objectives? Asking for a raise might be a huge step towards easing inflationary pressure.
Similarly, you should speak with your manager about how you can satisfy their expectations and goals. Make a plan to better your work or take on new assignments in the coming months. Then, with your employer’s permission, analyze your success and ask for a raise in the future.
By taking these steps, you can help protect yourself against the effects of inflation. Do you have a tip you’d like to share? Let us know in the below comments – we’d love to hear from you. =)
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