👛How To Protect Your Purchasing Power While Everyone Else Is Losing Theirs

Prices are rising left right and centre. It’s now becoming impossible to ignore. You’ve gotta be living under a rock if you haven’t noticed prices creeping up. Blame it on Covid, blame it on Brexit. Or, better still, blame the Fed. Take your pick!

Either way, we’re now certainly getting less bang for our buck. But I hope you’ll stick around to find out what you can do about it because all hope is definitely not lost. Not yet anyway.

Supply chain jam

What we are facing now is some very real, and nasty shortages. From gas to magnesium, we’re running short of precious things that are needed in absolutely everything. Now, if suppliers cannot get hold of their materials, they’ll resort to producing less (hence that 3-month wait on your sofa) and prices go up as a result.

During Covid, many factories were shut and producing things once again is not as easy as simply turning the lights back on. Plus, workers are leaving their jobs. Hello, it’s the Big Quit.

So, we’re left with gaping shortages and nowhere near enough workers to produce all our stuff. If Covid’s highlighted anything it’s the importance of our Invisible Workers. Read here about the ones that literally drive our economy.

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Thanks to the increased cost of living, workers are being paid more to protect their real wages (i.e. adjusted for price rises). When wages rise, you know that further price prices are inevitable. In the UK, the living wage has already risen to £9.50 p/hour.

Here’s the thing, if companies are being forced to pay their workers a little more each hour (because the last thing they need is absent workers) then they will try and build this cost into the final price of their products and services which causes higher prices and yet higher wages. And there you have it. A never-ending cycle of rising prices. But interest rates could take the heat off. Read here how rising interest rates will affect your finances and what you can do about it.

But, there are those who have benefited from there being just a general lack of stuff. A friend of mine recently sold her car (and a five-year-old one at that) to a fellow who paid her well above the price at which she had bought it at!

It’s so difficult to get your hands on a new car, fresh out of the showroom that people are turning to the handy dandy second-hand car market. This rush to new cars has seen their prices jump by 24% this year alone! 

Why don’t you go and find out how much your car is really worth. Psst: you could be sitting on a nice pile of cash. I don’t know about you, but I get a good feeling knowing that something I own is rising in value, without me even lifting a finger! 

Up, up and away

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It’s not just cars and sofas that have soared in price. Assets have shot up in price, too. From real estate to stocks, they’ve all been bubbling over thanks to a nice combo of ultra-low interest rates and global money-printing programmes the likes of which have never been seen before.

The US printed $3.38 trillion during 2020 alone. To put this into context, almost one in every five dollars rolling about were created last year. Madness. 

See when Covid broke out in March 2020, interest rates (the cost of borrowing/reward for saving) were already rock bottom, at 0.1%. Lowering rates even further (well, as you can tell there ain’t much further to go) wouldn’t give the boost our economy so desperately needed.

So, what did central bankers do instead? They turned on the money printer. 

Unlike ’08 when this money got clogged up and mostly stayed in the banking system, this time round it made its way into every nook and cranny.

For want of an example, cast your minds back to the AMC/GameStop fiasco. A whole load of retail traders were out in the stock market (what looked more like a casino) splashing their $1,200 stimulus checks. Those on a salary of $35,000-$75,0000 increased their stock trading by around 90% more than in the week before they got their cash. Too much money sloshing around is all I can say.

Endless money?

This backdrop has been super for those who own assets because it pushed up the price of these precious things. Since March 2020, from our houses to our stocks, they’ve all been on the rise.

UK house prices have gone up an average of 13.2% over the year to June 2021. The Nasdaq has more than doubled since its March lows. Meanwhile, the S&P 500 has risen by 98%. That’s a whole lot of wealth being dished out out there.

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But for those of us who don’t own many assets, we’re likely to feel inflation’s pinch. Inflation, in other words, is a tax on the poor and a gift to the rich. Not a nice thought. 

There is an upside to all this asset price inflation, though. Think of those who sold their home during this past year – they made a killing. And those who held onto their stocks (ahem, tech) have enjoyed wonderful returns. So, inflation isn’t all that bad. It means that the economy is growing (albeit too quick too soon!) and the downside (falling prices) is a far worse fate. 

Luckily, there are things we can do to protect our money and preserve its precious purchasing power. 

Less is more 

We’re so used to being able to buy what we want when we want. Fancy a pizza pie with all your fave toppings at 11pm? Hello, UberEats. In the mood of some random stuff? Amazon prime to the rescue.

These companies have built entire empires monetising our inability to wait for things. Thanks to these whopper inventions it means we get to stay home in our pjs and have everything delivered to our doorsteps. Hassle-free. 

But the mere existence of all these ‘conveniences’ means that we’re finding it harder and harder to simply say No. With rising prices, you either invest (money goes up) or spend less but you can’t just sit back and keep on spending willy-nilly (money goes down).

Inflation is eroding the purchasing power of our money. £100 will no longer buy the same amount of stuff it used to. So, you can either plod along as though nothing is going on (and gasp at the end of the month when you see how just much money you’ve spent on groceries alone) or you can take some steps to cutting down your expenses and realise you really can make do with less. 

When you’re browsing online and you spot something you like, ask yourself if you really need them. With Black Friday only a few days away, remember that just because something is on sale does not mean that you should buy it! Oh, and there’ll be loads of clever marketing tactics designed to get you to try and spend more.

So, do yourselves a favour and make a list of everything you want to buy on Black Friday then make a note of these prices and compare them to the ones listed in a few days’ time. Last year, I wanted to buy some face products and found it to be cheaper before all the Black Friday ‘deals’. So keep your eyes peeled and do some price snooping beforehand.

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Yes, we all need to treat ourselves. This is a given. Investing and saving would be boring and difficult if we couldn’t see the fruits of our labour but there is a limit. Too much of anything is dangerous.

It’s about time we dig into experiences and all the things that money cannot buy you for never-ending happiness. 

This doesn’t mean living a frugal, tight-fisted, dull existence but rather embracing the minimalist life. Realising that there is a time and place for everything. You don’t need more shoes/jumpers/dresses ect. You’ve got a whole wardrobe of ’em. Enjoy what you already have. You’ll soon see that you have (way) more than you thought.

Put your money to work

Cutting down on our expenses will only get us so far. We need to take it one step farther by making our money work for us in the hope that we’ll be able to earn a return above inflation and preserve our standard of living. Read here how you can get started with investing to set you on the path to financial freedom.

Investing can be daunting and stupidly complex and since we aren’t taught it in school, sadly too many people don’t end up taking advantage of this compounding machine. So start by putting your money to work (for you) and let it do its thing. You can then sit back and relax knowing that your pennies and pounds are starting to grow. Just the way we like it.

You don’t need to have all your eggs in the stock market. You can put some into artwork, whiskey, wine, property and even crypto if you’re feeling adventurous. The great thing about these assets is that they aren’t too correlated with the stock market so when one takes a tumble, the other(s) will hopefully be climbing.

But these alternative assets require time and patience. And there are loads of nuances and things that as investor you’ll need to pick up on. But it can be a rewarding experience and even turn into a hobby.

All this inflation may very well disappear (unlikely but there’s still hope) or it might just stick around. So plan ahead and don’t be lured in by clever ways to spend more.

Stick to your thing, invest your money and, with a hint of luck, we’ll make it to other side. But it takes self-control and a willingness to adapt. Don’t get left behind in this price storm called inflation.

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.