Inflation is at an all-time high. The entire world right now is complaining of rising prices and increased cost of living. And the worst part is that it’s going to get worse before it gets better. This is something that we are going to have to live with and so we have to be smart if we want to survive it.
Here are three simple tips on how you can keep up with and probably even beat inflation.
Ensure the interest on your savings compensate for the rate of inflation
The first thing you should do is to ensure your savings are earning you a return that is higher than that of the cost of living. This is the first and the most reliable way to actually beat inflation in the medium to long term. Inflation in Kenya is right now at around 7%. If you’ve put your money in a current bank account that gives you 0%, it means that while your money remains uninvested in the account prices of commodities are going up by 7%. In the next financial year, your money’s worth will be at negative 7%.
Now, suppose you invest that money in a fixed deposit account or a traditional savings account that gives you 4%. Still, you might think that you are 4% richer, but ideally what’s happening is that inflation grew by 7% but your money by 4%. This is still at a negative 3% in comparison to inflation and the time value of money. So, in order for you to beat or keep up with inflation, you need to ensure that where your money or savings are, they’re earning you a return of 7% on the bare minimum.
But the goal is to beat inflation. So you want to ensure that you’re getting higher than the 7%, maybe 9% in your Money Market Funds, 10% or 11% in your treasury bills and bonds, your equity funds or bond funds. This is a sustainable way to ensure that you’re not just keeping up, but you’re also trying to do your best to actually beat inflation in the medium to long term.
Increasing your sources of income
With the prices of almost all basic commodities going up, one source of income is close to none. On top of ensuring that your investments are earning you a good return that is higher than inflation, you want to ask yourself; how can I earn more money?
Increasing your sources of income is one of the efficient ways you can combat the rising cost of living. And you can do this in three ways:
- Diversify your skill set.
If there is one thing you need to prioritize right now, it is actually to acquire demand-driven skills. The way we earn money has changed drastically. We still have some traditional careers that are giving us some good income, but right now there are a lot of demand-driven skills. Take advantage of the fact that you can work remotely to work two jobs or three jobs, or just do some freelance work. In your area of expertise or even outside of it, ask yourself: what are some of the demand-driven skills that I can start acquiring to make myself relevant? There are a lot of courses online, from Udemy to Coursera that can help you level up.
- Learn how to print money using your own ideas.
If you can learn how to package your different ideas and turn them into a product or a service that you can monetize, that is something that you can replicate and keep making money from. To find side hustle ideas, look at your skill set, your training, the things you do very well, compliments you keep getting from people who know you. Try to see how you can monetize your hobbies, your passions, and things that really make you tick.
- Negotiating for better pay.
Recently we had a pol on Instagram and learned something new. A lot of responses from people who are in HR were saying how if you stay in a job longer than like five years, your earning potential decreases by close to half. So you want to not only upskill but also change jobs every two to five so that you can keep negotiating for better pay. Don’t stay in one job for nine years, earning the same salary. You want to try your best to either negotiate for a better salary where you are at or look for suitable opportunities elsewhere.
Rethink your spending habits
Times are tough, and unless you’re not being affected by inflation, you want to actually sit down and reevaluate where your money is going. Now is not the time to just take all your money and splurge it on big holidays and extravagant purchases. This is the time that I would actually advise holding your money. Not holding the money and putting it in your house or in your bank, but keeping as much money as possible for the purpose of investing and multiplying that money so that you can actually be able to keep up with and beat inflation.
This is the time you want to practice the things we have been talking about like budgeting and cutting down on unnecessary spending. There has never been a better time to slow down on big luxury purchases. You want to really prioritize having a needs list vs a wants list and cut down as much as possible on the wants so that you can maximize how much of your money is actually going to your investments.
If you can do these three things— have your savings earn higher interest than the cost of inflation, think of avenues of increasing your source of income, and minimize unnecessary spending, I believe you will have a fighting chance.