The Inflation-Proof Guide To Managing Your Finances

From soaring petrol prices to the insanity of $10 heads of lettuce, we’ve all been feeling the impact of rising prices worldwide. As inflation hits a 40 year high of 9.1 and living expenses continue to rise, managing your personal finances has never been more crucial than it is today. Thankfully, there are many steps to take — and actions to avoid — that can help you navigate this period of high inflation, for however long it lasts. Not entirely sure where to start?

Here are 5 expert tips for inflation-proofing your finances

Consult With A Financial Advisor

The first step to inflation-proofing your finances is to know where you stand. In order to figure this out, you’re going to have to do some basic maths to assess your personal inflation rate. But wait, what exactly is a personal inflation rate? Simply put, personal inflation rate refers to the rate of price increases as it affects a specific individual. You can figure this out with manual calculations or the help of a financial advisor. To calculate your individual inflation rate, simply subtract your monthly spending from a year ago from your current monthly spending. Once you have figured out the difference, divide it by your monthly spending from a year ago.

Example: If your expenditure in July 2022 is $2500 and was $2,100 a year ago, your personal inflation rate is 19%.

Your personal inflation rate will be able to help you contextualise why it feels like your money isn’t stretching as far as it used to — and can aid in motivating you to cut down on unnecessary expenses moving forward.

Keep Costs Low

Now that you’ve figured out your personal inflation rate, it’s time to think about how you can keep costs low in the various aspects of your life. Cutting down on expenses can be difficult in today’s fast paced and competitive world, but it is a necessary step to take when managing your finances during inflation. If you haven’t looked over your budget in a while, now is the best time to do so. A great way of figuring out exactly where your money is going is to keep track of your expenses with a free expense tracker. Once you have a rough idea of exactly how much you’re spending and what you are spending it on, you can start to make changes to your spending routine. Some easy examples of keeping costs low include:

• Cutting down on the number of streaming subscriptions you sign up to;
• Taking public transport instead of driving;
• Cooking meals at home instead of frequently dining out;
• Downsizing on your rental property; and
• Reducing electricity and water usage; amongst many others.

Obviously, not all of these solutions may be practicable or applicable depending on your individual lifestyle, so be sure to pick a few realistic changes that apply to your circumstances.

Budget For Inflation

It is more important than ever to ensure that you are living within your means. Aside from keeping costs low, budgeting your monthly expenditure for inflation is key to being able to withstand the changes of the current economy. Thankfully, there are many online budgeting tools and apps at your disposal in 2022. These apps are incredibly useful as they allow users to set up their own budgets, set and track goals and make use of customised insights. Additionally, spending is automatically categorised and many apps even come with a bill tracking function that allows you to factor in expenses before they even come in.

With a solid budget in place, you will be better equipped to make financial decisions, prepare for emergencies and stay focused on your long-term financial goals.

Look For High Yield Interest Rates

The truth is, it can be incredibly frustrating to not be able to obtain loans for big purchases as easily during periods of high inflation. This puts many people at a dis-advantage, especially if you are looking to purchase a home, car or any other large outstanding bill. Even so, consumers can still take advantage of higher interest rates on bank accounts to combat the effects of inflation on their cash. Interest rates on bank accounts will never totally beat the rate of inflation, but these accounts are vital in hedging against inflation far better than keeping your money in a low-rate account. With a high-yield savings account, you can earn more interest while, most importantly, still having access to your cash when you need it.

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Consider Investing In Bonds For Long Term Savings

In order to be prepared for emergencies or unexpected expenses, it is always wise to keep short-term cash in a savings or checking account. However, if you have spare money in the bank that you don’t plan on touching for the near foreseeable future, a really good option is to consider investing in treasury bonds for long term savings. As defined by the Australian Office of Financial Management, “Treasury Bonds are medium to long-term debt securities that carry an annual rate of interest fixed over the life of the security, payable semi-annually.”

When you invest in bonds, you are essentially lending money to a company or government. In return, you get regular interest payments, called coupon payments. Compared to money that’s sitting in your savings account and earning an interest rate that is far below inflation, money that is put into a treasury bond pays a fixed rate of interest, which can provide a steady income stream in the long run. Furthermore, bonds are defensive investments and come with lower risk than growth investments such as property or shares.

Find out everything you need to know about bonds here.

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The truth is, no one knows what the future holds, but making simple changes to the way you manage your finances may be able to weather times of inflation more easily. We hope that today’s article has equipped you with the knowledge and tools you need to preserve the purchasing power of your savings.