Practical Tips to beat Inflation

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Money may only be a resource for achieving your life's financial goals, but an important resource it is. Inflation reduces your money's worth, making you poorer slowly but surely. With food prices once again making newspaper headlines, beating inflation is on the agenda of every citizen .Let me help you with some tried and tested tips to beat this monster.

1. Know your expenses:
Generally I advise clients to break expenses into critical, important and discretionary. While spending on the former two are necessary, the discretionary expenses can be cut. So while groceries and electricity bills are critical expenses, the yearly family holiday is important while the bigger expensive car is a discretionary expense that can be avoided or postponed. 
For planned expenses make a budget. Easier said than done, but a budget makes a big difference to savings during times of inflation. It will help you allocate money to the right expenses. Take an example of food expenses .How often have we squabbled over the Rs.200 per kg for apples ,but paid double the amount for a home delivered pizza without batting an eyelid. In reality for most people their food bills constitute less than 10 % of their planned budget while discretionary spending on eating out would make their pockets lighter by a far larger amount. It would make far more sense to bring down eating out expenses that are unplanned than worry about spending on essential fruits and vegetable. Scan your spending habits for more such unplanned binge spending and cut them down. Being conscious of your spending habits will go a long way in meeting your savings goals. 

2. Insure the value of your savings:
Inflation erodes purchasing power in the long run and you can insure yourself by investing in assets that provide inflation hedged returns. Real estate and equities are two assets that offer you this insurance. Be invested in these assets for the long run and you are likely to earn real returns. For crisis protection a small percent allocation (5 to 10 %) to gold is a good idea. 
Money that is required to meet short term goals and hence necessarily allocated to debt should be parked in short term bond funds where you don't lock in rates. This is because higher inflation rates are soon followed by higher interest rates. Keep you options open at this time. Lock in money in long term bonds /deposits only when yields are really high. Evaluate your medical and life insurance covers. You may consider increasing covers in line with inflation. 


3. Take care of loans:

Inflation results in raising interest rates. Manage your loans by consolidating and repaying expensive credit card and personal loans. Use credit card cash back offers, reward points and repayment cycles to your advantage. 

4. Increase income streams:
Owners of business or professionals find it easier to deal with inflation as their incomes rise with inflation. For those who are salaried, inflation does not necessarily mean increased income. If asking for a raise is not an option, consider other means of increasing your income. This could be by taking up a side business or putting the second home on lease.

Inflation can throw off guard the best of financial plans. It is necessary to recognize it and take action from time to time. 

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