Top 5 Ideas to Manage Inflation and Protect Your Finances

Rising prices of everyday items worry everyone. It hampers saving and investment capabilities, as more financial resources are used up in fulfilling basic needs, which cannot be ignored.

Also, inflation eats up our savings. In simple words, the worth of money quickly deteriorates, making what you have today worth less tomorrow. 

For example, the inflation rate in India has averaged around 5.97% from 2012 until 2022, which means that over 10 years, the price of commodities has almost doubled (by applying the Rule of 72). You are paying almost double the amount for an item that you used to pay at the beginning of 2012. 

This is how inflation eats up your savings and is regarded as a silent killer of your money. 

Therefore, it becomes extremely important to manage inflation in your personal finance. Here are some of the ideas to manage inflation to reduce its impact on your finances. 

Top 5 Ideas to Manage Inflation

Inflation has always existed in the market and will continue to exist. Governments all around the world prefer a low, stable, and predictable inflation to fuel growth. And, sometimes it may go beyond the expected lines, which then impacts finances. Therefore, you need to learn managing inflation from the very beginning.

Managing inflation is not an overnight task, but a continuous process in order to reduce its impact on your finances. The following are top ideas to manage inflation.

Negotiate lower prices on purchases

Do you know, there always exists a chance of negotiating better deals on almost any purchase. However, there is a process, you cannot ask for a discount straightforwardly.

Start by building a rapport with the seller and enquire about any programs or discounts available, that you can avail of. For example, request for a free upgrade on your air tickets, including an additional free service or oil change on your car or two-wheeler purchase, asking for extra discounts on electronic goods, requesting a room with a better view when staying in hotels, etc. 

If the seller is not entertaining your request, you can consider other options, but don’t force the seller. In most cases, customers who ask for discounts are almost always successful. It helps to reduce your expenses and get more value at the same price. 

Avoid deploying a large part of income in risk-free savings option

Risk-free saving options in India include fixed deposits, recurring deposits, post-office deposit schemes, etc. The returns from the risk-free savings option are always lower than the inflation rate. You tend to lose money by saving on such options, thus reducing your purchasing power. 

With current bank deposit rates at historically low levels, you can hurt your finances by saving a large sum of money in risk-free savings options significantly during an inflationary condition. 

Investing in risk-free savings options is useful in maintaining liquidity and creating emergency funds, as they give you quick access to funds at the time of need. 

Diversify you investments

It’s important to deploy a part of your income in the right investment assets that can beat the inflation rate over the long term to maintain your purchasing power. 

Having a properly diversified investment portfolio consisting of equity and debt assets can provide you with the returns to combat inflation. Investing in fundamentally strong businesses that have low capital needs with pricing flexibility can help you to get higher returns over the long term. 

Keep household and other expenses in control

Keeping a tab on your expenses is very important. By monitoring your spending habits over weeks and months, you can cut down on several expenses that are not required or plan your expenses. Develop an understanding between your needs and wants, and allocate expenses accordingly. 

For example, we all like to spend on items and things that give us instant gratification, but you should be aware that if it gets ingrained in your lifestyle, it can become one of the big reasons for bad financial life. 

Invest in yourself

Apart from the financial investment, you need to regularly invest in yourself. It could be enhancing your knowledge, and learning new skills that match the need of the current time that will help you stay relevant in the job market and professionally grow in life. 

Wrap up…

Managing inflation should be everyone’s concern and priority to stay on top of their financial game. It’s the discipline in managing your finances that helps you to overcome difficult financial situations and stay on the course of acheiving your long-term financial goals. 

Remember, you cannot control inflation, but you can control your financial decision and choices that will help you to manage inflation tomorrow.