Steadfast Finances5 Inflation Survival Tips

5 Inflation Survival Tips That Will Save You Money

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Inflation is not something new to most of us. It is a term we often hear and read in the news. Still, many people do not really understand it.

The question you want to ask are: how can you lessen inflation’s negative impact in your life and on your future? Before we delve into how you can survive inflation, let us first take a look at inflation and its effects in general and in our personal lives.

What is inflation and what are its effects?

Inflation is the increase in the prices of goods and services which lessens the purchasing power of money. This results in a higher cost of living. The value of our money in the past is not as much as its value today. Everything is affected by it, including the prices of food, services, gas, and it may even affect your savings for your retirement.

Many factors lead to inflation…

But the easiest to understand, perhaps, is connected to the theory of supply and demand. If the supply of a certain commodity is limited, but the demand for it is high then, naturally, its price will go up. The impact of limited supply of commodities or services can be direct or indirect. An example of a direct impact would be that there is a big demand for vegetables, but its supply is limited because of typhoons or any natural calamity. As a result, its price will surely go up.

An example of an indirect impact is the increase of gas prices. A huge increase in the price of gas will also increase the prices of many commodities since their transportation and production costs will also increase. This effect holds true even to other basic commodities.

Here are other examples of things affected by inflation.

Interest rates: Another thing affected by inflation is interest rates. If you have a savings account with an interest rate that is lower than the inflation rate then you are actually losing the value of your money while it is in the bank. The same is true for cd rates. Even if you see your bank account balance going up, with prices going up faster, you can still buy much less with that amount.

Real Estate: During the time of inflation, buying real estate is advisable since many people are forced to sell their homes at a lower price. But it is the opposite for sellers. They can see losses during this time since they will have to settle for a lower market value.

Survival tips in the time of inflation

Though most impacts of inflation are negative, it is not a dire situation that no one can survive. Here are some tips to help you survive it:

  1. Buy only what is necessary. This is not the time to squander money on the things that you don’t need. Prices are high so be wise with your spending.
  1. Use less of the items whose prices are its highest during this time. For example, you can try to drive less to reduce your gasoline consumption.
  1. Invest in real estate if you want to invest. As mentioned, prices of real estate go down during inflation. But remember that it will be hard to resell it immediately. You will have to wait until its market value goes up again.
  1. Get a fixed rate mortgage. The interest and the amount you are paying is fixed over a period of time which means the increase in commodity price and loss of the purchasing power of money will have no negative impact on the amount you are paying.
  1. Get rid of treasury bonds. Bond prices slump during inflation. Instead, invest on TIPS (Treasury inflation-protected securities). The value of this bond is protected against inflation and is backed by the US government.

Inflation has become a part of our daily lives. It is an inevitable part of the country’s economy. Though we cannot prevent it from happening, we can surely survive it.

Author BioYFS is owner and author of Your Finances Simplified. He was born and raised in West Philadelphia and is now a financial adviser, IT contractor, landlord, and treasurer of a non-profit. He created his blog partly due to his desire to help people with their finances.

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Posted by Dominique Brown   @   20 February 2012 2 comments
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2 Comments

Comments
Feb 20, 2012
10:47 pm

Inflation is a tricky one…it’s so subtle that we often don’t notice it. Sometimes I forget that it’s always there, but just think back to your childhood and recall the price of basic items then. That’s why we have to take advantage of the markets and buy-low, sell-high.

Feb 20, 2012
11:13 pm
#2 YFS :

Good thing inflation effects the price of income also.

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