Inflation rates are rising worldwide. The working class is beginning to experience a phenomenon that, until a few years ago, was considered typical of countries in economic crisis. But not anymore, from the United States to Mexico, Latin America and Europe are feeling the effects of inflation.
Faced with this new reality, people need to know how to protect their money, their income, and their consumption from price rises. The main goal is to safeguard the hard work, time, and effort you put into earning money.
It is also important that inflation does not wipe out your ability to save money. So there is nothing better than knowing the basics of personal finance, so you can protect your money in times of inflation.
These tips will be very useful for those who often send family remittances. That is, for those who work in the United States and help their relatives abroad.
Read on and learn everything you need to know to safeguard your wealth in the face of economic escalation.
What is inflation?
Let’s start at the beginning: what we call inflation.
Inflation is the process by which there is a sustained increase in the prices of goods and services. It is almost always calculated as an average of the percentage change in the Consumer Price Index (CPI).
Although there are different opinions among economists on its causes and consequences, they all agree that the main effect is that money loses its worth. In other words, money loses real value, even if it does not lose nominal value.
For example: if a person has USD $100 and with it, he/she used to buy twenty products per month for USD $5 each if prices increase by 10%, the following month he/she will only be able to buy eighteen products.
This is how wages lose purchasing power. People on the streets, even if they do not know how to conceptualize this phenomenon, feel its effects. In inflationary periods you hear people say that “the salary is no longer enough”, or that “everything is getting more and more expensive”.
Have you heard these phrases in recent months? Probably yes; maybe you’ve said them yourself. This is a sign that we are in a period of rising inflation.
The causes are diverse, but in this article we do not want to focus on them. But, rather than presenting you with a problem, we want to give you a solution. Let’s review what methods are available to you to deal with this phenomenon.
Avoid losing value
In order not to be so affected by the economic escalation, the first thing you should do is to avoid losing value. To do so, you must convert your money into assets that are not depreciating. It can be gold, a house, or any instrument that instead of losing value, as money does in inflationary times, increases its value.
Keep in cash only the money you plan to spend soon. Your savings, keep them in those assets. You can even invest them in instruments such as stock market shares, debt securities, precious metals such as gold, cryptocurrencies, or index funds.
Even if you have money in the bank, you can protect it. Some banking institutions have fixed-term savings accounts, which offer interest above the inflation rate.
The main thing is that you do not allow your money to depreciate.
Don’t depend on a salary increase
If money is depreciating at a rate of 10% per year, asking for a pay raise won’t solve anything.
Yes, companies tend to increase salaries in inflationary periods, but they are unlikely to do so above the rate of inflation. This leads to an unpleasant paradox: you earn more money, but you can buy less.
So, while it’s fine to negotiate with your employer for the highest possible salary, you can’t rely on that alone. You must turn that salary into something that doesn’t lose value. Try some of the strategies we recommended in the previous point.
Increase and diversify your income
Just as you can protect the loss of money value, you can also generate new income. Not only can you buy assets that do not depreciate, but you can also acquire assets that generate income.
This could be a property, which will generate income for you by renting it out. Also, a vehicle, which you put to work as a cab or for transporting goods. Even something much cheaper like a professional camera, which you can rent regularly.
The important thing is that you have a higher and constant income.
Control your expenses
When inflation hits, many people discover how poorly they are managing their expenses. When they see them in perspective, they understand that many of them are expenses that can be cut and even unnecessary. We recommend that you learn to prioritize the money you spend.
If you live in the U.S. and you send your family remittances every month, it’s clear that this is a priority expense. But maybe those restaurant meals or take-outs every week aren’t so much of a priority.
Just because prices are going up doesn’t mean you should starve or deprive yourself of important things. What you should cut back on are your superfluous expenses, the ones you didn’t pay attention to before the inflationary period.
Prioritizing your expenses is one of the best personal finance tools. Once you have reduced the unnecessary and systematized your most important expenses, finances will make sense. You may even be surprised when you discover that you don’t have to change your lifestyle much because of price increases.
Inflation generates understandable fears. Individuals and businesses begin to see money yielding less and act out of panic.
However, those who manage to get through these periods of price increases are those who do not give in to fear and know how to plan.
It is likely that because of your daily occupations you have not paid attention to your personal finances. But inflation has already arrived and therefore you should do it now. Learn to protect your money from price increases and they will not affect you too much.
