Last year, I have a friend who received a 10% salary increase. From P30,000 per month, it became P33,000. With the extra cash, he signs up for a gym membership of the same amount. In his mind, he could afford the new expense.
Yet the numbers are telling a different story. Inflation reached 6.7% (October 2018), giving him a mere 3.3% increase or only P990. Sadly, that is not all. In recent months, he often feels that his salary is suddenly inadequate to cover his usual expenses. He made no major changes in his lifestyle, and yet his budgeting has become tighter since early this year.
Clearly, inflation has a huge effect on one’s way of life. Despite salary adjustments, employees do feel the price hikes with the decreasing value of their money. Furthermore, there are additional expenses incurred due to having a false sense of monetary gain. Faced with this reality, what can employees with a strict budget cope with inflation? Can we be inflation-proof? Below are three practical strategies.
- Don’t leave all your money in cash.
Banks accounts, including high-interest bearing savings and long-term time deposits, will never give you rates that outpace inflation. That’s why it’s never a good idea to put all your money in the bank. Your savings account should be enough to cover at most, 2 years worth of your expenses. Beyond this amount, your money is better put on investments that grow faster than inflation.
- Invest on instruments that beat inflation.
There are a lot of investments whose objective is to grow your money beyond the inflation rate. The most popular are pooled or mutual funds and the stock market. Nowadays, a lot of financial institutions and mutual fund companies offer pooled fund investments starting at only P1,000. So dedicate time to learn how these investments work. Then take action and open an investment account and put your money there.
- Build your emergency fund.
When inflation rates surge, your emergency fund becomes a source of extra cash to cover the sudden increase in the prices of goods. It will also keep you afloat until you can adjust your budget. As recommended, your emergency fund should have at least six months-worth of expenses. If you have a family, then 9 months to a year would be a better amount to target.
Yes, you can be Inflation-Proof!
Inflation is part of a healthy economy because it shows that a country’s wealth is growing. There will be periods when it can surge. And this is the time when we need to be more conscious of our spending. However, inflation rates will eventually taper after several months, and we can have that sigh of relief from our wallets.
What’s important to remember is prices of goods will always rise through the years. And the best way to prepare for this eventuality is to invest regularly – making it the most effective way to inflation-proof your future.
Are you ready to be inflation-proof? Visit www.sunlifefunds.com to start investing now!