Preparing Yourself For Inflation

Written by: Lilly Cobal

By now, we all know the inconvenient truth that two things are certain in life – death and taxes. But we should also know that inflation is certain too, no matter what economists say or the market have us believe in. Most governments around the world go through this phenomena at some point. The US government has been fortunate enough to experience prolonged period of deflation so far. However, this situation may not remain the same. Someday in the future, we will have to face the brunt of inflation. The choice is to be prepared for it or do nothing, and the latter is not a smart move if you want to survive financially. 

Links between economic progress, salary growth and inflationary pressure are undeniable. You don’t have to look hard to see that inflation and deflation are a way of life. Inflation is when there is too much money in the market that it leads to increase of price for everything you come across – food, car, house, vacations and much else. While minimum wages have increased, it hasn’t increased to a level that could beat inflation rate. In fact, the cost of various goods has outpaced most people’s salary increase as well. This is not just bad for the economy but for the individual’s financial well-being too. 

In order to maintain purchasing power, you will need to overcome inflation at all levels. This means making smart investment choices and protecting assets at the same time. There are many ways to do this. For some people, the primary misconception is that making effort to beat inflation means foregoing convenience or money. That is not true in most cases. There are many examples of how you can save yourself from the ugly wrath of inflation, like the ones that are explained below.

1. Investing in Yourself

It may sound like a cliche, but when you are investing in yourself, you are preparing to fight the inflation. When you are investing yourself, you are increasing your knowledge as well as earning power at a rate that outpaces inflation. This investment should begin with a quality education followed by improving your skill to meet various market demands in your field of work. Higher education equates to higher pay and sometimes on par with the future inflation. You are not only shaping your future here but involving yourself in a recession-proof career. 

2. Investing In Stocks And Mutual Funds

As for the basics, stocks are shares offered by individual companies and mutual funds are a collection of various stocks. People have always been skeptical in investing in stocks, but time and time again they are making the mistake of not investing in sound stocks, ones that have huge potential, sound revenue or inflation-proof features. So, when there is an inflation, the common premise is that stocks will fall naturally. This is not true. As inflation sets in, prices for goods and commodities will increase and these companies will start selling their products or services at a higher rate increasing the value of stock eventually. By investing in commodity stocks like oil, metals and grains, you are being a part of this profit. However, investing in certain consumer goods will not do any good to your portfolio because they are subject to price adjustments due to escalating production and labor cost. In other words, inflation may have increased the prices of these products, but due to rising expenses in conjunction with inflation, the equity may not have appreciated enough. 

In essence, if you want to combat the negative effect of inflation, you will have to look for investing in lower cost producers, such as healthcare or commodities as mentioned above. And don’t take the power of dividends offered during this period for granted. Those little amount of dividends over the course of a decade can add up and make a huge difference to your overall asset. 

3. Investing In Real Estate

Another way to protect yourself from inflation is to invest in real estate – residential or commercial. Real estate is the best thing that has happened to many investors during previous recession periods. The issue is when you are buying real estate in order to live in versus buying it for investment purpose. In the former case, your profit or loss is only realized when you sell the house. On the flip side, an investment property if it is steadily held for a continuous period of time will not only fetch profit but beat future inflation as well. So, if purchasing real estate is your choice, make sure to hold it for a few years or until the value of the property has increased. 

The general premise is that if you are opting for a fixed rate mortgage, you will be able to beat the inflation within the term of the mortgage. This will leave you with ownership of the house and may be leave you with an appreciated property, too. Investing in real estate is also another powerful way to achieve one of the most significant drivers in life: saving for retirement. Every time you take on a project like this, you are achieving the dream of ownership to create a sound financial portfolio. On a grander scale, you are making profit that allows you to contribute to you and your family’s future. 

Ultimately, everyone’s hope is to have the knowledge and the ability to make sound investment choice to face off inflation rate. There are many books and resources that will show you how to start investing, to attain financial success and freedom. Ask yourself, what legacy you want to leave behind for your loved ones? Where you ultimately want to go, and your investment journey will take you there. Focus on what works for your best interest and one that is affordable and sensible at the same time. Be persistent in your goals. When you are focused, you will have the same outcome as other successful people have had before you.


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Preparing Yourself For Inflation

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