With inflation rates soaring across all corners of the globe, the rising cost of living is taking its toll on everyone involved. Before we dive into how you can stay afloat in these uncertain times, let's first cover the basics.
When inflation occurs, the prices of goods and services go up, which in turn decreases the buying power of consumers. This leads to a decline in economic growth as people now have less spending power and high costs to contend with.
Everything is more costly than it was a year ago—and even a few months ago. The cost of living has been going up dramatically, with costs for basic expenses like household goods and services on the rise. So, how can you stay ahead of the curve?
Below we cover three important steps to take in order to stay ahead of the rising cost of living. Protect your finances and protect your livelihood with these three top tips:
1. Safeguard your finances from inflation
While saving is vital to anyone's financial health, in periods of increasing inflation it's best to diversify and not keep all your savings in a fiat currency. This is due to fiat currencies depreciating in value during inflation, equating to a reduced amount of money in several weeks or months.
Instead, try to move some of your savings into vetted investments, this allows you to keep your funds safe and grow their value at the same time. This might also lead to capital appreciation and dividends, should you invest in dollar-based investments.
Explore alternative options that protect your funds from inflation but also allow them to grow.
2. Increase your income
For a while now, consumer prices have been increasing steadily. It's unfortunate but it doesn't look like things will be getting any cheaper in the near future. You can't keep waiting and hoping for a better situation - you need to take action.
The best way to do this is by focusing on ways to increase your income. Here are three options below, however, there are plenty more available online. Consider spending some time exploring this avenue.
Apply for a promotion
Ask for an increase/promotion: If you're currently earning a salary, it's probably time to talk to your employer about boosting your earnings. Make a thorough account of what you've achieved and why you deserve a raise—and present it to the correct person. Look for resources on how to ask for a raise if you don't feel confident to do so right now.
Learn a new skill
Add a new skill to your resume: With thousands of free tools online, look for a new skill that both interests you and leverages your current skillset. Learning a new skill is not only great for your mind but can also contribute to that promotion you are after or a high-paying job. Find an in-demand skill and get learning.
Monetize new skill
Turn your skill into an income: Whether it's your new skill or something you're naturally talented in, consider turning your skills into income-generating products. From creating online classes to consulting to publishing online books, turn your skill/s into money. Again, there are plenty of resources online that can assist you in this endeavor.
Focus on building wealth through avenues already accessible to you, from asking for a raise to creating an online course, these new avenues of income can help you stay afloat in periods of inflation.
3. Be wise with your money
This goes without saying, but no matter how much money you make, you want to stick to your budget and follow your financial plan. Now isn't the time to be spending lavishly. Also ensure that you have the resources in place to fall back on should you experience any unexpected hard times, like losing a job or emergency. healthcare costs
A great 3-step plan for preparing for, and then overcoming, inflation is to:
- Create a budget to cover basic expenses and lifestyle expenses, and stick to it.
- Pay off debt. Interest rates are going to increase meaning that you will be paying more for your current loan.
- Keep building your emergency fund. This is the first port of call when starting to save. Aim to have six months of living expenses saved up in an accessible account.
What is the cost of living index?
A cost-of-living index is a price index that measures the relative cost of living over time or in different regions. The index takes into account changes in prices for goods and services, as well as substitution with other items when prices vary.
As an example from the U.S. according to the Consumer Price Index (CPI), between March 2021 and March 2022, the cost of living index rose by 8.5% (before seasonal adjustment). This is the highest 12-month increase that has been reported since December 1981.
The bottom line on the cost of living
While inflation doesn't need to cause mass hysteria, it is a time to be more consistent and cautious with your money. Be mindful of what you're spending your money on, be aware that loan repayments will increase, and be prepared for increases in everyday goods and services. By following these three steps above (safeguard, increase, and be wise with your money), you should be able to stay ahead of the curve.
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