Five Ways to Safekeep Your Finances During Inflationary Periods
Financial Anxiety during times of high inflation is caused by the rising costs. However, if you can alter your financial plan a little bit this will reduce the impacts on your household budget.
Brief Summary
- Inflation means that prices are going up and the value of money is decreasing at the same time.
- Keep your future savings in interest earning accounts.
- Check and adjust expenditure to discover areas where it is possible to reduce overheads.
- Concentrate for now on repaying variable-rate loans.
- Choose a credit card that offers rewards so that you receive maximum benefits from your spending.
Definition Of Inflation
Inflation is simply an increase in prices over time. It affects everything from essential goods like food and housing to services like healthcare. Over time, moderate inflation has been expected which explains why something worth $1.00 in 1920s would be approximately $18.00 today.
When prices go up, the purchasing power or how much your money buys declines. A surge in inflation means that each unit of currency is worth less than it was just a few months prior. You are likely to spend more even if nothing changes about how you live and what you buy. This may strain your budget as well as worry about whether or not to save due to the low level of your savings being eroded through inflation. There are however steps that can be taken to safeguard one’s finances from being negatively impacted by such occurrences as inflation.
- Evaluate Your Savings
Where you store your money can significantly affect its future worth. Consider putting away future savings into an account bearing interests so as to gradually grow the balance over time helping shield against inflation as much as possible,
If you have some funds that don’t need immediate accessibility, investments such as share certificates might be more appealing options.Consider starting with saving and share certificate accounts if you want protection from high rates of inflation.
- Keep Track of Your Expenses
Every dollar counts when expenses are rising. Tracking your expenditure is a great way to ensure you use your money wisely. Check bank and credit card statements from the past few months for places where you can cut back.
Ask yourself:
- Are you paying premiums on streaming services that you seldom utilize?
- Do you eat out more than cooking at home?
- Are you paying for a gym membership which has not been used in months?
By reducing such discretionary spending, you will not alter your daily life significantly but it could ease some pressure on your budget.
- Concentrate On High-Interest Debt Payoff
Central banks tend to raise interest rates during periods of increasing inflation so as to encourage spending cutbacks. These high rates make borrowing expensive while at the same time increasing costs of existing debts.
Most people experience this in relation to credit card debt. As interest rates go up, so will the cost of holding balances on credit cards. Focus on paying off your credit card debt instead so that these added expenses can be avoided and if possible pay down the balances monthly.
However, there’s no reason to hurry through paying off all those debts. If you have a fixed rate mortgage, then your interest was locked in when it closed and rate increases will not apply. In fact, they could be lower than today’s inflation rate making it financially wise to keep gradually settling them as they were before.
Instead, concentrate on paying back variable-rate loans like credit card debts. As the rates go up, your minimum payments could only accommodate for the interest alone and little would be left for reduction of the principal. Overpaying will facilitate quicker debt repayment.
- Consider an Adjustable-Rate Mortgage for New Loans
An adjustable rate mortgage (ARM) may sound like an odd choice for a new mortgage when prevailing rates are high. Yet it can be a very smart decision during inflationary times.
With fixed-rate mortgages, you pay the same interest rate throughout the loan term. If interest rates drop, you don’t get to profit from these lower costs. On the other hand, an ARM allows you to take advantage of falling interest rates since your rate will decrease as its index decreases too. An ARM’s rate can also increase; nevertheless, caps at institutions like UNFCU check how much your rate can rise so that you are not exposed to wide swings.
- Make the Most of Rewards
Even if you have a well-planned budget there is a probability that you will spend more than usual during periods of high inflation. Nonetheless, this situation can still be turned into an opportunity by going for a credit card with rewards programs or cash back options where possible. Without any finance charges being levied against them by settling their outstanding balances each month in full people can avail themselves to these perks if they make other purchases besides.
For example, one earns reward points based on every dollar they spend using UNFCU Azure plus Elite cards among others provided by this esteemed organization which may eventually allow him/her get more out of such acquisitions either in terms of flights or hotel stays that they make.
