Inflation is the persistent rise in the prices and values of goods and services causing devaluation of currency. It is one of the tools used by the central bank to control a nation’s economy.
As an economy grows, business and companies spend more money on goods and services affecting all aspects of the economy, from consumer spending to business investments and employment rates but our main focus is the fact that inflation makes money saved today less valuable tomorrow (devaluation) as it aims to reduce the purchasing power of individuals.
The factors responsible for inflation are stoned into three broad classification as shown below;
1. The demand-push inflation:
When demand is greater than the supply. Producers increases the price of a product/service when they cannot meet the demand hyping the price to create an illusion of scarcity and reduce the purchasing power of buyers.
2. Cost – push inflation;
with an increase in the prices of the components of production, its only expected that there will be a corresponding increase in the output to shift the burden to the final consumer.
3. Built in inflation:
this is caused when labour and wages increase as a result of an increase in the prices of goods and services.
Understanding the meaning and causes and of inflation, some people still fall prey to it. Making these mistakes out of impulse, fear and emotional reasons. They include;
1. Saving all your money in a bank.
I know what you are thinking, saving money in a bank is not something bad and you are right!
But saving money in your bank isn’t financially adviseable considering banks don’t really give much returns on deposits made to them. The best they can give for a fixed deposit account is 7%-12% and that’s not really much considering what other opportunities like forex, real estate and landed properties can give to you. Investing in crypto currency and forex can guarantee 200% returns on your investment with the right knowledge and expertise of course.
2. Selling off assets instead of acquiring more
The poor and middle class always want to sell off properties during an inflation when their income cannot measure up their expenses and of course at lower prices as there is scarcity when in fact they should be acquiring more assets at this time.
The rich understands this concept hence they take advantage of this period and maximiser their revenue base.
Taking advantage of this opportunity might very well be the first step towards managing inflation. Buying these assets as investment gives you an edge.
3. Working without a budget or plan
A budget is the proposed income and expenditure plan made by an individual to guide his financial activities over a period of time. Most people make the mistake of working without a budget spending more than expected leading to income deficit and debt.
Borrowing for the right reasons, actually aint pretty bad but Looking at the mistakes above , borrowing during an inflation means increased rate which might lead to bankruptcy and liquidation,
One would conclude that studying the economic calendar in relation to inflation and the reactions of people towards it gives you an edge/ upper hand so you can manage it to your advantage.
Inflation has benefits when managed with the right information and strategy, Below are ways to manage inflation so it won’t have an adverse effect on your finances and assets.
1. Invest in stock, forex and shares ;
investing is a good way to curb the effect of inflation as the main purpose of investment is to acquire revenue greater than the cost of acquiring the investment. Investing in stock can generate a long term return Acquiring shares of company’s that are starting out, having great prospects.
2. Invest in yourself/acquire a skill
one of the long term ways you can protect your assets from inflation is by investing in yourself so you can get a side hustle that increases your revenue base. Acquiring a skill guarantees you a stable income flow and the best part? You get to determine your working hours. There are quite a number of skills that are in demand, they include copywriting, social media management, virtual assistant, digital marketing, Affiliate marketing e.t.c
3. Scout for opportunities and evaluate your investment portfolio .
always be on the lookout for good investment opportunities by staying on trend, listening to news, and going through informative materials.
The need for evaluating your portfolio cannot be over emphasized as it allows you to ascertain your financial position and make informed decisions. Usually review should be done at intervals, annually, bi annually, or quaterly.