Europe witnessed the highest inflation rate in March 2022 when annual inflation reached 7.5% substantially reducing the average consumer's purchasing power. With global supply chains still recovering from the impact of the pandemic and armed conflict causing rising energy prices, inflation is expected to stay the course and even surge in the next few months.
What does this mean for you - the average citizen? Well, ideally your wage or salary should increase with the rising prices but unfortunately, that's not usually the case. This means that you have to find ways to effectively manage your income so you can achieve inflation resistance. It is basically an approach that enables you to restrict your expenditure using different methods. Here are some practical tips for you to follow:
1. Make a Budget and Try to Save More
The suggestion might come across as an obvious one but the reality is that most people either don't have a budget or they are not good at budgeting. This leads to overspending and a reduction in savings. That's exactly why there are almost 100 million European citizens across 21 different countries that don't have sufficient savings in their accounts to buy two months of basic necessities such as food and utilities.
It goes without saying that budgeting becomes increasingly crucial when you are confronting financial distress in the form of inflation. You can rely on web services and apps such as You Need a Budget to organise your money and cut down unnecessary expenses. To make this a little bit entertaining, you can use apps like Loot for iOS or Savings Goal for Android to track your savings.
2. Identify Non-Essential Purchases and Cut Them Out
Generally, we become entrenched in our lifestyle which makes it difficult to see all the money we are spending on items that we can live without. We believe that we are not spending excessively when we actually are. Unfortunately, in an economy where prices are rising, you cannot afford to spend on non-essentials, let alone luxuries. This is why it is important to take a close look at your expenses and identify what you can get rid of. Some of the common things you can do include:
- Reducing or completely eliminating dining out and cooking more at home.
- Unsubscribing from multiple streaming services and using only one. You can rotate between different apps by keeping one streaming service at a time.
- Purchasing fewer clothes, books, electronics, cosmetics, and other such items.
3. Invest in Inflation-Proof Assets
Once you stop spending on non-essentials and start budgeting, you will find that you have a lot more disposable income. Now, in a stable economy, you would usually leave your savings in your bank account. However, this isn't a great idea in an inflation-impacted economy as your money continues to lose value. When the bank is giving you 4% interest per annum but the annual inflation rate is touching 8%, your €1000 will be worth €960 after a year.
To overcome this value reduction, it is a smart idea to invest a fraction of your savings into inflation-proof assets such as stocks of companies that aren't capital-intensive, short-term bonds, real estate, and commodities. You can use eToro to make a wide range of financial investments in a quick and easy way. It is a social trading platform where you can choose your own assets or follow an expert trader with a history of making profitable investments.
4. Postpone All Major Expenses
Unless you have to buy or spend money on something that's absolutely essential, such as a car repair that you need for work or a health emergency, make every effort to put off all major expenses. You can renovate your house and buy new furniture when the economy gets back on track. Moreover, when you make a purchase during inflation, you usually end up paying a high price which might not be worth the utility you get.
5. Create a Source of Secondary Income
There will be times when all your attempts at saving money and budgeting your expenses may fall short. Sometimes cutting down your spending isn't enough and you simply need to make more money. There are a few small things that you can do such as taking surveys, getting cashback from apps like Fetch Rewards, and becoming a beta tester for a service. If that's not enough, there is a multitude of things you can do to generate a second income including:
- Teaching your native language online
- Teaching a subject that you are good at
- Becoming a virtual assistant so you can work flexible hours
- Offering freelance services if you have a creative skill
- Investing in inflation-resistant assets
- Selling day-to-day use items on online marketplaces
6. Seek Public Financial Assistance
Many people go through a number of financial struggles, especially in a difficult economy, without realising that their government offers assistance to ensure that they remain financially secure and stable. If you are a student, for instance, you can rely on scholarships to continue your education. Similarly, there are financial assistance programs for various purposes including child care, low-interest loans, unemployment support, and more.
7. Become a Smart Consumer
When money isn't a problem, we tend to develop habits that are not geared toward saving every Euro. We believe that the prices are always what they appear to be. However, that's not truly the case and every smart consumer knows that. Some of the tips that you can make use of include:
- Buying stuff in bulk quantities that you will need in the long-term
- Haggling and negotiating prices whenever there's a possibility
- Comparing prices online across different websites before making a purchase
- Waiting for sales and discounts to make major purchases
You can always use the apps like Groupon and RetailMeNot to make the most of coupons, discounts, and cashback deals.
Final Word
Inflation can be financially stingy and has the ability to throw you out of your comfort zone. If you want to ensure that you can maintain your financial independence, you need to be proactive and smart. Following the tips mentioned above will put you in a better position to deal with inflation and tough economic situations so you can retain your financial security.
