Common Man : Inflation beating Strategies

May 2022 headline Inflation came in at 8.6% in the US driven by high food, energy and rent costs per Bureau of Labor Statistics. Fed continues to take policy actions to tame inflation and has aggressively raised fund rate by 75bps and signalled that it is committed to bring the inflation rate down to target inflation rate of 2%.  This means more such hikes are to be expected in the upcoming recent months.

Fed chair Powell said that hindsight is 20/20 and Fed was wrong in estimating the high inflation rate to be transitory. It looks like high inflation rate is here to stay and would take time to course correct.

One also needs to understand that there is headline inflation and core inflation. While general headline inflation (inclusive of food, oil and energy costs) is based on value increases of all items in the basket, whereas core inflation excludes food and oil and energy cost increases.

Typically headline inflation is more volatile as food, oil and energy prices tend to be more volatile. Fed is mandated to bring the headline inflation down but it has limited measures and less control over factors that are affecting food and oil prices such as Ukraine war, food supply chain constraints due to pandemic and oil prices that are influenced by oil producing countries and a few cartels.

While fed and political leaders will continue to attempt and arrest inflationary pressures, we can look at following strategies that can help you stay ahead of inflation:

Planned spending

During pandemic we all got used to government support and have greatly benefited with low interest rate and low inflation environment during CV19 pandemic. Easy access to money affected our behaviour and led to increased spending habits. 

Given pandemic is now behind us, we are now starting to see the adverse impact of large government spending and recent macro-economic factors like Ukraine war and global supply chain constraints are also having significant effect on food and energy prices. 

As a consumer you have limited control over the prices of items you consume, but you certainly have control over, how much, what item and when you will spend the money. Having a good financial monthly budget can help you prioritize and stretch your dollars based on individual set of circumstances. Practice making budget of your monthly spend and taking conscious decision to stay within it, even if it means less visits to restaurants, car-pooling with friends, scaling down the number cars you own, paying down the high interest-bearing debts, delaying or even completely stopping certain expenses etc.

Work smarter and generate second source of Income:

It is important to generate second source of income to beat inflation. Based on your educational background and work experience, you can always look for opportunities in the related field and add supplemental additional income. For example, if you are an accountant and have been working for an organisation, you could take up part-time teaching assignments, or you could write finance blogs or take up preparation and filing of tax returns for a fee etc.

Money saved is money earned 

Often, we outsource our household work to general contractors and end up spending a lot of money. There are tonnes of DIY opportunities where instead of outsourcing the job, you could consider doing it yourself. This will allow you to learn something new and be creative and save tonnes of dollars. Suggestion here is not that you do the professional and technical job yourself, but there is no harm in picking up and painting your own room or doing landscaping in your garden and even installing a few electrical fixtures in your own house. You get the drift…

Invest into passive income generating or less capital-intensive assets

If you have been fortunate to have extra funds, you should consider them investing in assets that generate passive rental income with positive cash flows and have potential to appreciate capital. Similarly, given that stock markets have declined significantly over the last year there are many good options for long term investors to invest in good stocks. We recommend consulting with your financial advisor prior to making any such investment. 

On the other hand, if you are out of job and plan on starting something new on your own then consider investing in less capital-intensive investments. Consider businesses that rely on your skill set and do not require huge investments into office, building and equipment. This will ensure you are able to generate revenue without huge investment outlays.

Invest in yourself:

If you did not take advantage of pandemic to upgrade and invest in yourself, still there is time to upgrade your skills to what is relevant and required in the new world in post pandemic era. You are recession and inflation proof when you do the best whatever you do. This requires spending time and money in training and upgrading your skills. Be prepared and ready for your next best opportunity with top dollars.

Want to connect with us…

If you have any questions or comments regarding this blog or would like to discuss any of the strategies in detail to assess how best you could implement and execute them, then please drop us a line. Our experts at Thinkaholic Associates Inc. ( Tai) will be more than willing to help you with your set of circumstances.