Five financial tips: How to beat the inflation crunch

Central banks and governments can dial support up and down to manage economic growth and stimulate recovery – especially in uncertain times.

The timely and coordinated implementation of fiscal and monetary policies can often save jobs, protect companies and facilitate a sustainable recovery.

One of the many potential effects of government intervention aimed at supporting economies is inflation – the increase in prices and the fall in the purchasing power of money over time.

Not surprisingly, inflation is an important consideration for economies, investors and consumers. 

Inflation isn’t necessarily a bad thing, as long as it is controlled. Some inflation can actually be quite welcome.

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When the price of goods gently increase over time, it encourages consumers to buy today rather than later, with only a muted impact to the value of their savings. This, in turn, encourages companies to produce, and as a result supports the workforce.

However too little or too much inflation can be damaging. Too little inflation can encourage consumers to delay purchases if they expect a decrease in the price of goods, which can slow economic growth.

Conversely, too much inflation, and a consumer’s standard of living might drop as goods become too expensive.

In both cases, the confidence of consumers and business can be adversely impacted, which creates its own feedback loop on economic growth.

Here are five day-to-day financial tips for inflationary times

1 Review debts

Debt will be impacted by inflation and rising interest rates. If you have a mortgage there may be an opportunity to refinance and reduce costs, even reviewing fixed vs variable rates.

For other debts like loans and credit cards, get rid of high interest debt first, or at least make it less expensive (some credit cards have 0 percent interest plans, for example).

2 Budget properly 

Sit down at the end of the month and review your household spending. What was necessary and what could be avoided? Gain a better understanding of your spending habits and actively budget moving forwards.

Also review any existing autopayments and subscriptions. These tend to build up over time and you might not realise how much you have actually signed up to. Do you really need five streaming services, the extra Ultra HD package plus five additional users and those six magazine subscriptions?

3 Shop smarter 

Make use of deals, buy in bulk where possible, swap out brand names for generic products, incorporate more meatless meals, use more low-cost staple food sources (such as pasta and rice), and avoid all the needless additional items or items that aren’t on the shopping list. Check what you have already, make a list and stick to it.

4 Increase your income if possible 

Prices are rising, but this is less of a problem if your income is also rising. Easier said than done of course, but there are various ways to achieve this – negotiating pay rises with employers, researching your industry and potentially changing jobs for better pay, taking on additional or consultancy work, starting a side project, or simply selling things you don’t need.

5 Make room for investing 

Contributions may reduce if there is belt tightening across the board, but it is still important to try to keep at least a little continuing month to month and try to get back up to normal levels again as soon as possible.

Think about why you were investing in the first place – if your goals haven’t changed, then you still need to save for them no matter what is happening in your financial life.

And remember, the whole point of investing is to beat inflation and maintain the purchasing power of your money over the long term – that hasn’t changed, so your behaviour shouldn’t either. 

Rupert Connor is a partner at Abacus Financial Consultants