Inflation is also called devaluation of money. Your money becomes less value. Or: you can buy less for a Euro. There are several issues related to this: there is a lot of money in the world, resources are scarce and there are issues with production and delivery of goods. All these aspects lead to more expensive products. And as a result, your money is worth less.
For example: your groceries are becoming more expensive. You used to pay €80 for your weekly shopping, but are now paying €90 for the same items. This means your money has less value. Your purchasing power reduces.
Okay, so everything becomes more expensive. This means you have less money to spend on things you like and to put into your savings account. But besides short term effects, high inflation which lasts for a longer period of time also has a long term negative effect. Money you are saving at the moment will decrease in value. Imagine you’ve got €20,000 in your savings account which you want to use for when your child goes to univeristy. After three years at an inflation rate of 6%, this will only be worth €16,611.-
As the interest rates on savings accounts is extremely low, your savings are worth a lot less. This means that high inflation is not only a problem right now but also in the future.
Luckily you can take action to restrict the negative impact of inflation on your wallet. There are two things you can do to limit the reduction of your purchasing power: increase your income or reduce your monthly charges. It is also sensible in the long term to get your money working for you. The rule of thumb in times of inflation: money will become less valuable as products and investments are becoming more expensive. Investing your money can counteract devaluation. Your savings will decrease in value as it’s not moving and you don’t make a profit. It is therefore interesting to decide how to get your money working for you. Using a safe investment strategy often leads to a profit which is higher than the inflation rate.
Read on and discover what you can do about the effects of inflation on your wallet!
It sounds simple but a lot of people have no idea what their monthly charges are. Looking into your expenses from recent months will give you the insight required. How to handle this? Download the app from your bank and look at all your expenses. When you’re on a roll, devide them into categories. This will paint a clear picture. It also gives you an overview of all subscriptions and contracts with different suppliers.
A lot of people have a long list of subscriptions which they no longer need, or forgot they had in the first place! The big companies behind these subscriptions are all using inflation to increase their prices. It might sound boring, but look into you subscriptions and decide whether you really need them. You could save hunderds of euros a year!
A mortgage is often the most expensive item. And even though interest rates increased slightly in the beginning of 2022, the interest rate is still at an historic low. Saving on your mortgage is often a possibility. For examply by changing mortgage provider. You can also benefit from the low interest rates by making your house more sustainable. Read more about changing mortgage providers via Vixx.
Besides your mortgage, your energy bill also costs a lot on a monthly basis. More than ever due to the increase in energy prices! Using less energy can save you a lot of money. And as inflation is very high at the moment, investing your savings in sustaining your house is a wise decision, as you will make some profit out of it. If you haven’t got much money in your savings account, you can also decide to use your mortgage. There are plenty of rules and regulations you can benefit from. The calculation is simple: a 10% profit on your investment when borrowing money at a 2% interest rate, leaves you with an 8% profit. Your consultant can tell you more about this! Read more on smart investments to make your house more sustainable.
Negotiating with your TV or energy supplier could be beneficial. These suppliers all have a budget available to turn you into a customer. We call this their acquisition budget. This budget is already included in the rates they charge. And you can imagine they would rather keep you as their customer, instead of having to attract new customers. You can use this information when negotiating with your suppliers. And you could easily save tens of euros a month. What if your supplier doesn’t want to give a discount? Use his/her competitor’s special offer to save money!
Your salary does not increase at the same rate as inflation does. This means a reduction in your purchasing power. While at the same time, a lot of employers increase their prices for their clients. Besides, good personnel is scarce in the current employment market. This means it won’t be easy to replace you. This combination gives you a strong starting point when negotiating your salary. Are you bound by a CLA or a maximum you can earn within your salary spec? Then look into your secondary employment conditions. You might be able to claim your mobile phone or other expenses to reduce your monthly charges.
Besides the salary your earn from your regular job, you can also try to earn some money on the side. You might have a hobby you can make some money from. Or valuable knowledge you can sell. By using online revenue models in a smart manner, you can generate additional income while only spending a few hours a week. This ‘side hustle’ is very popular with the younger generation. You could try to get followers on social media with your specific knowledge or hobby, build a website and show adds or sell your time or knowledge as a freelancer besides your regular day job.
We mentioned before that money is not the best way to make a profit now that inflation is high and the interest rates are low. As a result, more people are investing their money. Investing in a diverse and devensive manner is a relative safe way to increase your assets. There is always the risk of a decrease in value when investing your money. It is therefore sensible to also make sure you have a financial buffer. If this buffer is high enough, you can invest a certain amount on a monthly basis. There are numerous ways to get started. We recommend talking to an expert or start with smaller amounts to gain kowledge and experience before really going for it.
We all have stuff laying around the house which we don’t use anymore: gadgets, books, old furniture, jewellery etc. These items are gathering dust which is such a shame! Selling items you no longer use has numerous benefits: making other people happy, tidying your house and creating funds for investment. Killing three birds with one stone!
Besides an increase in the costs of energy, groceries and other items, the excess value of your property also increases during a rise in inflation. We also deal with a scarce property market. A lot of people have excess value on their property. What to do with that? You can use this excess value to invest to make money: sustainability, real estate or stocks and shares. Be aware that this is more risky than using your savings. Your financial advisor can tell you more about the different possibilities!
Would you like to start protecting yourself against inflation but you don’t know where to start? Our consultants are happy to help!
Vixx Financial Planning will create a plan to meet your goals, based on your personal circumstances. Curious to find out how it works?