She is passionate about the financial management of people around her. She is all about self-growth and is open to constructive criticism.
Inflation affects every country, but the rise and fall of the price depend solely on the economy's stability. Most developing countries are likely to be more affected by inflation than others.
What is inflation?
Inflation is the overall increase in the price of goods and services. The value of your currency and investments is never constant. The value keeps reducing, thus reducing the purchasing power of consumers.
For easier understanding, let's cite an example. This year, you can purchase a bag and a shoe for just 100 dollars without sparing any change. If inflation occurs, you would be unable to buy that same bag and shoe with just 100 dollars because it would be more expensive than it was before therefore reducing your purchasing power.
According to StatBureau, over the last ten years, there has been total inflation of 18.84% and counting.
What Are The Causes of Inflation?
So many factors could cause inflation and they include
This inflation is caused by an increase in the cost of production of a firm. The firm would have to increase the price of its outputs to cater for their growing cost. The burden of catering for the cost would then fall on the final consumer. An example to be cited is a bakery. When the cost of flour, sugar and butter increases, the bakery would have to increase bread prices to reflect their increased costs.
- Demand-pull inflation:
This inflation occurs when there is an increase in demand for a particular product but no corresponding increase in supply. This would automatically lead to a rise in the price of the product. There is more money chasing few goods. An example that could be used are famous brands. Most times there is limited supply of the product and the demand exceeds the supply.
- Increased Money Supply:
When there is an increase in money supply in circulation like coins, cash and all form of monetary items, inflation would surely occur. There is too much money chasing a few goods, just like in the case of the Demand-Pull inflation. The government curb these type of inflation through the use of policies
This is a situation where a country's currency exchange rate keeps falling, resulting in the lower value of the currency. The devaluation makes the country's exports less expensive and encourages other foreign countries to buy the product of the devalued country.
Other causes of Inflation include:
- Policy & Regulations
- Rising wages
This aim of this article is not to discuss the causes but to discuss how to protect yourself against inflation so let us dive straight into that.
How To Protect Yourself During Inflationary Period
Inflation is one phenomenon that is sure to occur. Why not be prepared when it comes? Every growing economy has to experience inflation to progress. The following would keep you protected in the situation of inflation.
- Investing In Yourself
One of the best investments you can make is investing in yourself and increasing your financial growth by learning high-Income skills, which would boost your earning capacity. Improving your productivity and also gaining any form of education to enable you to be more knowledgeable. High-income skills include Sales, Copywriting and so on. Investing in these skills would increase your income. Getting that money working for you is an excellent way to beat inflation.
- Invest in Real Estate
Any true investor would know that there is money in Real Estate. Real Estate is one of the assets which appreciates, which counters the effect of inflation. Buying real estate won't get you rich overnight. When buying real estate, you have to keep in mind that you do not sell it immediately after purchasing. You have to be patient enough and ensure it appreciates before you sell it to avoid being on the losing end.
- Reducing Your Expenses:
Try to cut down on some of your expenses to reduce the amount you spend. Any payment which can be avoided could be cut down. Postpone buying of goods or products of high prices during inflation. The prices of such products may fall after a while due to a fall in demand. Always ask for a discount when buying goods. This would cut your budget expense.
- Diversify your Portfolio
By investing in stocks that are sure to beat inflation, you could successfully beat inflation. It would help to study how companies react and how much they lose/gain during inflation before investing. Look for companies that can increase their price during inflation without negatively affecting their profit. Also, you can invest in a business with low capital needs and would ultimately survive in such a period.
- Invest in a Different Currency
Another way to beat inflation is to invest in a different currency. Most likely, a currency that is of higher value than your country's currency. That way, you can have something to fall back on when your country loses value.
There are many more ways for you to protect yourself and your finances during inflation.