Since 2020, companies have raised wages 4.5 percent. But workers may not feel any better off because that increase is being eaten up by inflation. The annual inflation rate was more than 8 percent for the month of April alone.
So, what can you do to get ahead of the inflation monster? Here are a few ideas.
1. Formulate a spending plan
Households should have budgets just like any other organization. This helps you set goals and control your spending. Budgets are based on your priorities, where you want to spend your money the most, and where the least. This way, you know exactly how much you’re spending each month and what you’re spending it on.
But you also need to have the discipline to stick to your budget because it is of little use otherwise.
2. Reduce your debt
Reducing household debt is generally not a priority for people, but during times of high inflation it needs to be given more attention.
That’s because inflation will also affect interest rate levels. The higher the inflation rate, the more interest rates are likely to rise. This happens because lenders want higher interest rates to make up for the drop in the value of their loans from inflation.
So you especially want to pay attention to debt that has variable interest rates, things like credit cards, lines of credit, personal loans, and variable rate mortgages.
3. Have a rainy day fund
You need to set aside money to handle unforeseen expenses if they should arise. This is something that many people are neglecting to do, even those who are in higher income brackets. They, like many others, are actually living paycheck to paycheck. Many don’t have enough money in the bank to cover a $1,000 expense.
4. Invest in bonds
Bonds are a good investment during times of high inflation for two reasons – one, they are low risk, and two, they are tied to the rate of inflation. An example of this type of inflation-fighting financial instruments is the I-Bond. They are backed by the US Treasury and are tied to the Consumer Price Index, a measure of inflation for a number of consumer goods and services.
The interest rate on the bonds changes every six months to keep pace with inflation.
5. Invest in your house.
Real estate is usually a good investment because home prices generally go up in value over time, although they can drop in value as well. So any investment you make in your home will generally increase its value.