It’s highly likely that your preferences for spending money will change, just as inflation changes. If you haven’t drawn up a viable financial planning approach, it might be wise to consider doing so, sooner rather than later. Whether it’s the way you finance your home, buy your food, or purchase a new car, every decision counts and will have a significant effect on your household’s daily lifestyle.
To put it in perspective, suppose you expect inflation to rise in the near future. You will feel more inclined to spend money perhaps for fear that it will lose value. On the other hand, if you project a lower inflation in future, you will be more motivated to save and invest for the future.
However, there are some safe investment approaches that can help keep your finances in check. Here are a few such ideas that are viable during the inflationary period.
1. Buy Rather Than Renting Your Home
During an inflationary period, home buyers have a better standing than home renters, and for obvious reasons. As a renter, your landlord is likely to hike up rent prices to make up for inflation. While it might not make a much significant difference during low inflation, the price hike will be much less desirable during high inflation periods.
But as a homeowner, your home value will generally increase, while the mortgage payments will be relatively consistent or fixed. This situation will translate to huge savings even during high inflation.
2. Get a Car Loan
Sourcing for a fixed-rate auto loan that stretches out a few years will ensure you get a lower interest rate, perhaps below 3%. And as inflation rises, you will pay off your debt at a cheaper price compared to the rate of inflation.
3. Focus on More Energy Efficient Investments
It’s wise to buy a car that’s more fuel efficient or better yet, runs on electricity. This will give you the flexibility of using solar energy to reduce your electricity bills. Renewable energy will also help to complement your home’s heating and cooling requirements to curb the ever rising energy costs.
4. Buy Quality, Durable Electronics
While they may come across as more expensive, quality appliances last longer, and cost less to repair over the same period as cheaper ones. They also need less servicing over their period of use, making them more manageable.
5. Stick to A Budget
It’s easy to lose track of expenses such as food, transportation, utilities, healthcare or education. This is why you should prepare a detailed budget and stick to it, to help manage price changes. You could also consider shopping at less expensive stores or cut expenses that won’t affect your lifestyle much.
While you can’t control inflation, you can take reasonable measures like making bulk purchases of non-perishables, taking on low interest rates, and preparing mentally for future cost increases.
6. Set Up an Emergency Fund
Sometimes, emergencies arise, whether it’s sudden unemployment or a medical emergency. And during such low moments, an emergency fund comes in handy to cushion you and your family against drastic lifestyle changes. If it’s practical, you can set up a few months of your income, say six months to one year to ensure that your household is safe even if all other investments fail.
7. Pay Off All He High Interest Credit Card Debt
By paying off most or all high interest debts will significantly reduce your liabilities, give you a better standing with creditors, and increase your investment options.
8. Avoid Investing Heavily in Any Individual or Employer’s Stocks
Pick the right group of investments in every asset category to limit losses and mitigate fluctuations in returns. If you were to invest heavily in an individual stock, it will expose you to significant risks especially if that stock is performing poorly or when the company goes bankrupt.
9. Consider a Portfolio of Investments
Ideally, the returns of these major asset categories-bonds, stocks, and cash, cannot move up and down at the same time. While one category is faring well in the market, another usually has average or poor returns. Having a portfolio of the three asset categories will help to counteract any losses, and your portfolio relatively better investment returns.
In addition, including enough risk in your investment portfolio will help you meet your goals within the target period of maturity.
10. P2P Lending
Although it’s a relatively new investment option, peer-to-Peer lending can be a lucrative endeavor. In this model, your money draws into a pool with other investors’ money. And together, you can loan out to individuals seeking funding.
In this transaction, no banks are involved, and the returns are higher when compared to traditional saving accounts. While the risks are higher, you can choose the parameters to use when gauging a borrower’s credit-worthiness.
In Conclusion, here are a few key takeaways.
- Alternative investments are becoming an increasingly popular avenue for diversifying your business portfolio, boosting your potential returns, as well as reducing the risk of making huge losses.
- Owning your real estate is more viable than renting.
- You should keep track of any recurrent expenses such as energy costs and transport, while watching out for alternatives such as renewable energy.
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