Inflation has been loudly brewing for many months now. Gone are the days of low, single-digit inflation. That almost seems like a fairytale. Oh what we wouldn’t give to go back there! 5% inflation soon turned into 8% which quickly morphed into 10% but that’s not where it’s stopping. Citibank reckons inflation will hit a whopper 18.6%, in the UK. We’ve somehow managed to rack up the highest inflation. Well done us. This almost feels like something right out of a movie, or a time machine that’ll take you right back to the 70s.
Inflation is scary for us partly because we’ve never experienced it before. And if you have, you’re a boomer. In which case you probably don’t need to worry much since you’ve already accumulated your wealth! But for us millennials and gen zers, inflation is something we never thought we’d come into such close contact with! Read here why inflation is driving me crazy (and you too!) plus what you can actually do about it.
Inflation kills your money’s precious purchasing power. If inflation reaches 18.6% like Citi reckons, this will mean that every £1 we have will now only buy us 80p worth of goods! In effect, things are gonna be ~20% more expensive. And trust me, I doubt anyone’s getting a 20% pay rise anytime soon! Reader, I’m curious – are you negotiating with your employer for a pay rise due to higher inflation or have you received one already? Though my boomer friend (now in his 80s) remembers when inflation hit 25% back in the 70s and his company upped his salary that year by the very same amount! Lucky for him, his mortgage had not increased to reflect the double-digit interest rates so he was a happy chap. The same, I bet, cannot be said for the rest of us!
You’ve gotta find ways to make your money grow and preserve what you’ve got!
But for the most part, we’ve somehow gotta magically find a way to make our money stretch by at least 20%! And if that’s not possible (something’s telling me it ain’t) then we’ve gotta seriously cut back on our discretionary spending (aka anything other than the bare necessities) to ensure we have enough in the tin. Because the last thing anyone wants to do is to be pushed into a corner that you have no other choice but to put your expense on your credit card charging you hefty levels of interest, ~20% infact!
Inflation to reach a little under 20% in the coming months (this is only reserved for the Brits) sounds beyond dreadful. Though my guess is wherever in the world you are (with a few exceptions), you’ll be experiencing a whopper decline in your living standards.
But here are some ways in which you can prepare yourself for what’s to come so that you don’t get punched in the face with a nasty surprise!
#1 Emergency fund – get on it ASAP
Emergency funds are those things we know we should have but feel like we’ll never actually need and convince ourselves that our money could be put to better use. Speaking for a friend who never has more than £100 in cash. Ever. He keeps on reminding me that his money is working harder for him elsewhere. Why should it be keeping his bank account warm.
Yeah, well, life often has other plans! And an out-of-the-blue expense can derail your whole thing. The caveat is that his credit card gives him access quite a bit of credit each month so he’ll be okay but most of us are yet to build up our credit scores and credit history that we’d be granted a hefty amount of credit. But even so, failing to pay it back can incur massive fees. Read here why emergency funds are so important (psst: it’s a really old post so no judging!)
Emergency funds are also for things like losing a job – you can’t quite put that on a credit card. It can get stressful and there’s no timeline with landing your new role. It can take weeks (my friend managed to secure a job 2 weeks into her search!) or, as is usually the case, months. You’ve gotta be prepared for these sorts of things. Especially with a recession round the bend.
So do yourselves a favour and build up your emergency fund. It’ll save you when you need it most!
#2 Sort out your debt
Get rid of debt – while inflation erodes the value of your debt (yay), high interest rates mean you’ll be paying much higher sums each month. This will eat into your disposable income and with prices rising left right and centre, you really can’t afford to do that. One thing that comes to mind is cars: consider ditching your high-interest-bearing auto and downgrading to a cheaper, second-hand model. Prices for the resell market have already started coming down (recession is no time to be buying flashy wheels). This means you’ll have one less expense each month: interest payments! Think about it.
You should focus on paying down your credit card debt – the average credit card charges you 20% in interest! This is nuts. By having eyeballs that are bigger than your wallets, you’re making those guys super rich. These rates will only climb as inflation creeps up so be careful and get rid of this ASAP. If not, it’ll only drag you and your finances down. You can’t afford for precious pounds to go toward paying off stuff you bought ages ago and can’t even remember what it was for! Read here why consumer debt is so dangerous and how to get out of it if you’re stuck plus what you can do to avoid it in the first place!
#3 Adjust your spending now
Our spending habits can literally make our finances. Spend too much and you won’t be investing enough for your future. But with energy bills, rent and pretty much everything rising in price (I’ve spotted 50% inflation for ice cream!), our money is not buying us what it once did. The only solution is to cut back on our ‘extras’. These are things like subscriptions, dining out, holidays (though this summer’s an exception: read here why), shopping and so on.
It’s so much easier to cut back when you have the chance – and when you can – then when you’re forced to. Make the hard decisions now and it’ll be easier later down the line.
You got this!!
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.
Knead Your Dough 
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