How to protect oneself against inflation

YEREVAN, December 5. /ARKA/. Most of us know what the term ‘inflation’ means. We meet this word in the news and other information resources when an increase in the prices of goods and services occurs. The issue of the cost of goods and services concerns everyone and this is why it cannot be ignored. For the economy of a country the price rise is not inherently destructive. Moderate inflation levels (1-2%) are needed to drive consumption, because higher levels of spending are crucial for economic growth. However, when inflation levels are higher they affect both the economy and people's lives. High inflation eats up the income depositors  expect to receive from their bank savings, reduces the standard of living of senior citizens, and increases social stratification. So when this happens how can you protect yourself against inflation? 

Here are some steps we would like to offer.

Analyze your personal inflation

Since the consumer basket of an individual differs from the average, experts recommend calculating, first of all, one’s personal inflation. This way you will be able to assess how the general price increase affects your financial situation. To do this, analyze your spending for similar periods of the current year and the last one. You can also monitor the situation over shorter periods, not forgetting the specifics of the seasons. For example, it is not productive to compare summer and winter months.

It is important to take into account the cost of those goods (and services) that are still in your consumer basket from the previous period. If you have stopped attending a fitness club, the price of a subscription ticket will not matter. One-time expenditures made every few years can also be excluded. You need to pay attention to regular expenses such as groceries, clothes, utility bills.  If you don't keep a budget, it's hard to accurately estimate the variable costs of food and entertainments. But, most likely, you will not fail to see an increase in the price of coffee, which you buy regularly, or tickets to your favorite movie theater.

The formula for rough calculation of one's personal inflation looks like this: (The cost of the current period's basket/the cost of the past period's basket - 1) *100%.

Optimize your spending habits

If your personal inflation rate is high, you can build on your spending pattern to adjust your financial habits.

- Try to buy goods from those stores, which offer lower prices and discounts. It's very likely that the same items you habitually buy from an expensive store are available at a chain supermarket. You can also look for analogs, and sometimes it's better to order online because they come with discounts and bonuses.

- Think about how important it is for you to buy things and appliances from well-known brands. Often people do not analyze the parameters of goods and the offers of sellers, and are guided only by the name of the manufacturer.

- Check your wardrobe in advance and buy clothes and shoes not in season, but in the period of sales.

- If you regularly use some services, for example, go to a swimming pool or a museum, calculate what is more profitable: one-time visits or a subscription.

- Use water and electricity sparingly.

- To avoid spontaneous spending, go to the store with a list of ietms you want to buy.

- Control which of the paid services and tariffs you use.

-From time to time, more favorable options may appear. Also, some subscriptions become irrelevant over time.

-Plan your day; this will help you cut down on some optional expenses, such as cabs, deliveries, and snacks.

-Pay attention to opportunities to get bonuses, discounts and cashbacks.

- Do not try to save money on everything. For example, when buying equipment and materials for repairs, you should assess the ratio of quality to cost and predict the service life.

Increase your earnings

You can protect yourself against the negative effects of inflation by increasing your own income. Consider developing new skills in order to qualify for a higher position or find a part-time job.

One way to maximize your income in the long run is by investing. If you choose assets for investment when there is no rapid increase in prices, you should combine various instruments, based on financial goals and terms, in particular, bank deposits and real estate.

However, it should be taken into account that bank deposits are not the most effective tool for increasing your income, as it may not cover losses from inflation. In crisis conditions, banks can raise the rate to keep customers, but reduce it as soon as the most stressful moment is over. A deposit, first of all, is a reliable option for short-term investments in order to safely place funds at interest.

Many people invest in real estate during inflation. Moreover, along with the rate of inflation, not only the price of the property rises, but also the amount of rent, which is beneficial for the property owner.

It is important for a private investor to monitor personal performance during inflation and look for tools to protect capital. The main advantage of investing in such a period is the distribution of risks between assets, preserving the purchasing power of income and the value of the portfolio.

Build on your knowledge and skills

It seems that a single person is unable to influence the processes and events that shape the economies of countries. In fact, you don't have to. Focus on managing your own finances and personal goals. What can be done now to avoid the negative effects of inflation?

-Improve your financial literacy. Read sites and channels that talk interestingly about finance based on specific cases. This will help you get involved in the topic and feel that economics is not an abstract concept, but a part of your life in various manifestations. If you see information about an upcoming price increase, you should not take impulsive actions. For example, some people invest in appliances and then have to resell them at huge discounts. It is important to analyze one’s budget and work on its weaknesses.

-If you don't yet keep a budget, start doing so. Such a step is really important, not just for calculating personal inflation, but for managing your finances in general. Record all your spending and income, dividing it into different categories. It is important to make the process as convenient as possible striving for automation. Customize spreadsheet templates for yourself or find visual options online. You can also download an app to record and keep track.

Keeping a budget will help you understand where your money goes and optimize your spending, which is especially important in an inflationary environment.

In conclusion, remember that rising prices are always present in the economy. It is important to monitor their  pace and be prepared for crisis moments. Stay informed and read the news in various sources, but always correlate official data with personal indicators. Protecting one’s finances is everyone's responsibility.