Eight tips to beat inflation

Amanda M. Rye

INFLATION is on the rise across the world. According to recent statements, the RBA expects inflation to increase in the coming quarters to about 3.25 per cent before declining to about 2.75 per cent over 2023.

Currently, the continuing fallout from COVID, increases in the price of raw materials and rising oil prices are behind the rising inflation.The situation between Russia and Ukraine made this worse. And who knows what way things will work out with our new Labor government.

So how will rising inflation impact your life, your earnings or your business?

Inflation is a rise in prices. Aside from fuel prices, the cost of goods and services will go up. Inflation — as expressed by the Consumer Price Index or CPI — is a measure of the average price you pay for a defined basket of goods and services. Expressed as a percentage, inflation is an increase in prices over a given period of  time.

When inflation is on the rise, you pay more for the same basket of goods and services.  Expressed differently, this means that in times of rising inflation, each dollar you have in your hand can buy less and less going forward.

So what can you do to beat inflation during 2022? Let’s look at your options.

What does beating inflation mean, anyway?

One thing you can do to beat inflation — that is to protect and maintain your purchasing power — is to put your money in a place which gives you a better return than the going rate of inflation. If you have money invested, say at 2.5 per cent interest, and inflation goes above that rate, you are losing purchasing power. To beat inflation, your investment must deliver a higher return to you than the rate of inflation.

Interest rates and inflation

In times of rising inflation RBA is likely to increase their policy interest rates. Then borrowing becomes more expensive. It encourages less spending—because things are costly—and more saving because you get higher interest on your savings. But if you are already in debt, you are going to have to pay more, when interest rates go up.

You’ll need to consider these factors when making personal and business financial decisions.

Here are eight things you can do to beat inflation in these tough times.

1. Reconsider where you invest money

Some investments are a hedge against inflation. Others are not. So parking more money in ‘safer’ assets during inflationary times is one solution.

“What is a safer asset?” you may wonder. Here, safer means two things. To hedge against inflation, you must ensure your money or assets grow at a higher rate than inflation. But you also must remember that some investments are safer than others because they carry less risk of losing your entire investment or its value. It pays to remember these two points when you consider new investment avenues in times of rising inflation.

Gold is a perennial favourite. Investors everywhere turn to gold in times of stress, uncertainty, and yes, high inflation. Being a rare metal, and one in high demand, you can expect the price of gold to be on a rising trend. It rises even more during times of economic upheaval like now, and has been rising since COVID-19 emerged. Buy gold digitally or buy an ETF of gold to get exposure.

2. Move your assets and savings to places with the highest rates of interest or returns

This is a second point, rather than part of the first, because you may be able to do it even without investing in new types of investment assets. You will be lucky if your bank can offer you better than a few percent interest on savings – hardly enough to keep pace with inflation.

That’s where crypto savings accounts are beginning to come into vogue. They aren’t the same as a bank account from a traditional bank. Because they are built on blockchain technology, they benefit from cheaper costs and exposure to greater gains. It is possible to move regular Aussie dollars, “fiat money” into a stable crypto coin, and stake it to earn 12 per cent interest per year. And as a bonus, the act of saving might compel you to save more and further cut down on spending.

3. Cut back on non-essential spending

Easier said than done, especially in Australia. Times of rising inflation is a good time to draw up a personal budget, if you haven’t got one already. Consider taking another look at the difference between your wants and needs. Do you need a new laptop, an expensive basket of food from the supermarket, a six-pack of craft beer? Need that online clothes haul or do you just want it? Consider delaying non-essential spending until things calm down. Cancel the hardly-used memberships, subscriptions or apps if you rarely use them. Be wary of auto renewals.

4. Get the right credit card

Now, if this sounds counter intuitive, think again. Getting the right credit card and using it wisely is one sure way to beat inflation, says David Boyd of Finty.com, the financial comparison site.

“Depending on your spending patterns and lifestyle, the right credit card may mean a cashback card, rewards or grocery store cards or even a balance transfer credit card.”

Inflation or no, you need to pay for your regular living expenses, buy groceries, pump petrol and pay your bills. So why not look at how to squeeze the best deals out of your credit cards?

David recommends looking for the best deals on cashback, rewards and grocery credit cards. Cashbacks put money in your pocket based on what you spend. Rewards and grocery cards entitle you for some discounts and other perks which you may otherwise have to pay money for.

Go for those with fat sign-up bonuses. Those with high balances and wish to curb their spending can look for a good balance transfer credit card. “Getting a balance transfer credit card does not mean you can go on a spending spree, even if you have credit left,” David said. “It is an opportunity to pay some debts and to rethink your spending patterns, and good to beat inflation. Otherwise, your interest rates may go up, making it even more costly to carry a big balance.”

Switch your mortgage from variable rate to a fixed rate.

5. Consider paying down your debts

You can be pretty sure that higher interest rates are on the way. It makes sense to pay off as much of your debts as you can, to stop having to pay higher interest on your loans and credit cards.

6. Find a new source of income, look for a side hustle

Cash flow is king. Even at home. COVID changed the world of work for many Australians. More companies and employers allow people to work from home and there are more opportunities for gig work. Consider diverting the time and energy saved to a side hustle. Convert a hobby or other interest into a money making project if you can.

7. Switch your mortgage from variable rate to a fixed rate

If it’s comfort you seek then at least you will know and predict your interest payments for a while. And of course, when interest rates rise, your fixed rate would remain fixed for a while at least.

8. Overpay your mortgage

Make sure how much your mortgage allows you to overpay before getting a penalty. That is the last thing you need. When looking for home loans and other credit, choose lenders that allow for earlier and extra payments.

While the above is not an exhaustive list, you may want to consider one or more of the options to help beat inflation and rising costs of living during 2022.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own circumstances and seek professional advice.

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