What is INFLATION?
To put it simply, it is is the increase in the price of goods and services over time.
Causes of INFLATION
1) Demand-pull
2) Cost Push
3) Increased money supply
4) Devaluation of currency
5) Rising wages
6) Policies and regulations
7) Supply deficiency
Effects of INFLATION
High inflation causes our buying power to erode, meaning that with the same amount money we can buy much less. This means that the lesser well to do will suffer the effects the most. Because it is economically detrimental to the country, governments will increase interest rates in an effort to try to control it. Now how much and when to do is subjective but the target is to bring inflation down to around 2%, as compared to some countries experiencing inflation as high as double digits. Of course whether this the best option or only option is another topic altogether. With the governments increasing interest rates, the economy will slow down and the risk of economic recession will increase. The worse scenario to play out is a case of Stagflation.
Stagflation is a combination of high inflation, economic stagnation as reflected by a slow growth rate and high unemployment.
Personal Finances in times of INFLATION
Expenditure - Unless you are wealthy, you will need to re look at your expenditures as your ability to save or invest is now much reduced. You can do it yourself but the hardest part is the discipline to carry it out. Seek an independent Financial Adviser's help if you struggle.
Investment - The old Chinese saying goes like In every crisis, there will be opportunities. You need to have a look out. This is a topic entirely by itself so do consult an independent Financial Adviser or someone you know who is savvy and unbiased. Sometimes there are some well known figures commenting favorably on certain investments BUT they have personal vested interests in them. So do be careful, do research don't just follow blindly. I will give you one example without naming the person. During the boom time for cryptos this person was hyping about a certain crypto. Many followed blindly and it did go up only to fall very badly. Oh, this person sold right after his comments send this crypto skywards.
Second Income
If you are employed, start a side hustle for another source of income. Some of them require very minimal money to start. Actually irrespective of the economic conditions, you should always have a Plan B. You never know when your company may down size or retrench you. If you own a business, you would need to look at how to adapt to the changes. There are many aspects to look at and it would be helpful to get a third party review.
Financial Review
If you need help to review your financial position, do consult an independent Financial Adviser.
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