If you want to manage your finances better for the year, you need to find a way to beat inflation.
This is one of the factors you have to keep in mind when managing your finances. This is true especially if you have a habit of putting all your funds in a regular savings account. You might be thinking that at the very least, your money is safe when you put them in the bank. That is true but over the course of time, you could actually be doing more harm than good.
This is where inflation comes in and sends your plan sideways. Simply defined, inflation is the rise in the price of common goods and services over time. In essence, it weakens the amount you have set aside if there is no growth. For example, your $10 now could probably buy you $2 coffee enough for 5 days. Inflation can bump up the price of coffee to $2.50. Your money now will only cover coffee expenses for 4 days, instead of 5. This is how inflation weakens your savings.
Of course, there is a way to beat inflation if you play your cards right. Understanding how inflation works and affects your savings is the first step. Now that you know how it works, the next step is figuring out how to get ahead of the problem. This is one of the most effective ways to help you manage and protect your money from losing its value.
Inflation calculator shares that inflation in 2021 has been going up from 1.4% in January to 1.7% in February and reaching 2.6% in March. This goes to show how inflation has been going up in the first few months of the year. But there are a couple of things you can do to help protect your money from losing its value over time.
The simplest and most straightforward approach to help you beat inflation is to try and increase your income. There are numerous ways to do this but it has been a lot more challenging with the health crisis still ongoing. It hasn’t been for a lot of people to get back on track. Much more, find ways to augment and increase their take-home pay.
But this should not stop you from going ahead and looking for a way to bring in extra income into your budget. In fact, Fortune shares that even before the health crisis, about a third of American workers were into the gig economy. This goes to show that a lot of people were already trying to dip their toes in getting a side hustle.
If you have a day job and you are not sure how to manage your time with another job, you can choose to upskill. Use the spare time you have to either learn a new skill or improve an existing one. One great benefit to this is it increases your marketability. It also opens your employment and earning options when you can rely on multiple skill sets.
Invest in stocks
A lot of experts would be quick to say that to beat inflation, you need to play the game itself. And this is where stock investments come in. Investing in stocks can help you get ahead of the inflation rate. Your returns could be more than the prevailing inflation rate. Not only will you stay on top of inflation, but you can also earn extra money from it. But of course, there will always be risks.
One of the most important factors you have to consider if you want to invest in stocks is your risk appetite. Simply put, you need to make sure that you have a handle on the amount of risk you are comfortable with. There will be times where your investment could go down. This is because the stock market is in a constant loss and gain cycle.
The best approach is to learn as much as you can and manage your investments wisely. As much as you can do everything all on your own, there are times where taking on the services of a finance expert would seem to be a smart choice. They can help you understand your investments better and guide you in the initial stages of your journey. This lowers your mistakes and helps manage the risk better.
To beat inflation, it helps to have a steady stream of income, and going into real estate is one of them. There are a lot of ways to do this where the most direct approach is buying a property you can rent out. It sounds pretty easy but there are a lot of factors to consider to make it a successful and sound financial decision. The downpayment on the property plus all the closing costs are some of the things to consider.
One upside to this is the fact that once you get it started, it practically pays for itself while you earn extra cash. By then, it is just a matter of adding more properties to your list. Then there is where you flip a property where you buy a house and sell it after at a premium. Some choose to renovate it to be able to demand a higher market price to make a profit.
Of course, this route is not for everyone initially because of the upfront costs. It also requires a certain amount of financial acumen to pull it off. You will need to make big money decisions and one wrong move could put you in a more challenging financial situation. The rewards are great but so are the risks so proceed with caution.
Switch to an adjustable rate
There is a good chance that you have an adjustable rate debt you are paying for each month. It can be your credit card debt or even your mortgage loan. This works for you if the interest rates are low. However, with the inflation on an upward trend, it will only pull your rates up. Once this happens, your monthly payments will see an increase as well.
This is the reason why you might want to either pay them off as fast as possible or explore switching to a fixed rate. If your balance is relatively small, you can choose to pay it off quickly. But if you have an adjustable rate for your mortgage, it would be pretty difficult to pay it off in one go unless your balance is small.
Talk to your lender and check how you can refinance into a fixed rate mortgage. This is one way to beat inflation. The goal here is to pay the same rate until you pay off the loan. If you are able to do this, you will have the peace of mind knowing your payments will not go up because of the interest rate. There will be other factors to consider like taxes and insurance but your interest rate is locked in until your payoff date.
Trying to beat inflation should be on top of your list for the year as you try to get back on track with your plans. You need to strengthen your finances in order to meet your short and long term financial goals. With a smart strategy, you can get ahead of inflation and protect your finances.