8 Key Ways to Inflation-Proof your Finance in the Philippines
There’s no escape from inflation. It’s like a pesky fly that buzzes around your head, refusing to go away. The more you try to swat it down, the more it seems to multiply. Inflation is a natural occurrence in any economy, and there’s nothing we can do about it.
It’s no secret that the cost of living continues to increase year after year. Inflation rates in the Philippines have ranged from 1.25% to 5.21% over the past five years, and there’s no indication that this trend will reverse any time soon.
This means that if your salary doesn’t increase along with the inflation rate, you’ll find that you gradually have less spending power. So, here are some tips on how you can make your finances inflation-proof this year and beyond. Let’s get started.
Tips to beat inflation this year and beyond
- Get rid of debt
- Cut back on non-essential items
- Take advantage of the promotional deals and discounts
- Invest in income-generating assets
- Make plans for your children’s education
- Plan for potential emergencies
- Make changes to your daily spending habits
- Invest in stocks, mutual funds, and ETF’s
What is inflation?
Let’s look at what inflation is and how it might influence your finances before we go any further.
Inflation refers to an increase in the prices of goods you buy regularly. If the price of electricity goes up by 5%, for example, then it means that your cost of living has also increased by 5%. The effect of inflation will vary depending on the amount of money you spend on specific items.
Let’s say you’re single. You earn P100,000 a month and devote 20% of your income to rent alone. If inflation is 3%, this means that you’ll have to pay an extra P3,000 every month to cover the cost of your accommodation. That’s a big chunk of your salary gone.
Tips to beat inflation this year and beyond
If left unchecked, inflation can have a huge impact on your finances over time, which is why it’s important to make adjustments when necessary.
1. Get rid of debt
When money gets tight, many individuals turn to credit cards or other forms of debt to bridge the gap between their income and expenses. This exacerbates the situation because it generates even more monthly obligations to fulfill.
The easiest approach to getting out of this mess is to cut debt as much as possible. You’ll be astonished at how quickly your earnings rise when you do this because more of your money will go toward interest rather than just covering necessary expenses such as rent and food.
2. Cut back on non-essential items
If an essential item like groceries increases in price by 5%, then it’s probably okay to absorb this cost. However, if a luxury item like steak or ice cream also goes up by 5% simultaneously, there’s no reason you should feel obligated to buy it. Why? These types of expenses are not essential and now cost even more than before.
The trick here is to cut back on non-essentials to offset the effects of inflation. If you’re single, this might mean giving up the occasional night out with friends so that you can save money.
If you have children, it could involve making changes to your home to accommodate the needs of everyone in your family. The key thing is that by reducing your spending, you will maintain a savings account without sacrificing too much comfort in the process.
3. Take advantage of the promotional deals and discounts
Discounts can either be temporary or permanent, which is why you need to make the most of both whenever they come your way. Keep an eye out for special promotions, and aim to save at least 5% off your monthly expenses this year just by taking advantage of them when they become available.
If you’re a credit cardholder, take advantage of the promotional deals every month or season. Usually, when shopping at festivals such as 10.10, 11.11, and 12.12, you can buy even big-ticket items and save as much as 70% off. Always be on the lookout for promo codes and special offers.
4. Invest in income-generating assets
If you’re working full-time, then saving up for retirement isn’t much of a priority because there’s still time on your side.
However, suppose you’re about to retire in the next few years or looking to achieve financial freedom before you reach 40. In that case, it pays to invest in income-generating assets like rental properties or index funds so that money can work harder for you instead of the other way around.
If you have a big house, you may want to downsize and instead rent it out so you can generate rental income. You may also explore real estate investment if you have saved enough money for a downpayment on property such as land, a house and lot, or a condominium.
5. Make plans for your children’s education
If you have a child, then inflation is something that you need to factor into your future planning. At some point in their lives, they’ll probably go on to pursue higher education, and when that time comes, you need to take steps now so you can cover the cost of tuition later.
Inflation affects everyone equally, so there’s no point in waiting until it’s too late. It’s better to make a plan now and stick with it as much as possible. You can open a separate savings account with a high-interest rate and consistently save money for it.
6. Plan for potential emergencies
Emergencies are unavoidable in life, so you need to be prepared if the worst happens. If you have no savings, any trouble will probably result in you taking out a loan, which will only compound the problem.
The key here is to have an emergency fund that can be used to cover unexpected expenses without resorting to debt. An emergency fund should cover your expenses for about three to six months.
7. Make changes to your daily spending habits
If you want to reduce the impact of inflation, then it pays to make some adjustments to your daily spending habits. For example, instead of buying lunch at work, bring in something from home each day or go out with friends for dinner instead.
You can also save money by changing your shopping habits (buying in bulk when stores offer discounts) and avoiding impulse purchases whenever possible.
If you love spending coffee at Starbucks, Coffee Bean, and other Tim Horton’s weekly, you might want to cut back on those expenses and buy a decent coffee maker and brew your coffee at home. You’ll be amazed at how much you will save if you change your spending habits in this area.
8. Invest in stocks, mutual funds, and ETFs
If you invest in stocks, mutual funds, exchange-traded funds (ETFs), and other such instruments that generate income for you over time, then your money will grow even while inflation is also occurring.
It also means that once the inflation effects have passed and the economy has stabilized again, you will be able to recoup all or most of your costs while still making a profit.
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