Life is not the same as it used to be. These days, a trip is something you save for months in advance, and if you revisit any items you saved on your wishlist, you might find that the price tag has effectively doubled.
This is the result of high inflation, which is the gradual, and sometimes sudden, increase in the price of goods and services over time due to variations in demand and supply.
In June, annual urban inflation increased to 13.2 percent, up from 10.5 percent in March, marking the fastest sudden increase in Egypt in the last three years.
But Egypt is not the only country facing an inflation crisis. The phenomenon is mirrored worldwide, as experts anticipate inflation rates to reach 6.6 percent in advanced economies and 9.5 percent in emerging markets and developing economies by the end of this year.
That’s why people all over the world are concerned with how to protect their wealth during periods of high inflation, taking necessary steps to safeguard their savings and find ways to diversify their income streams in order to get ahead of the curve.
If you’re wondering what you can do, here are some steps you can take to survive, or even beat, inflation:
Step One: Set Down A Monthly Budget
Wisdom starts with knowing. By sitting down and evaluating your monthly expenditures, you can start to have a basic understanding of where your money goes.
More often than not, we spend on things we don’t need. This amount accumulates by the end of the month into a small budget that could have been better spent elsewhere. By cutting down on unnecessary spending, you make sure that there is no waste, and make space for more valuable items in your list.
Improving your financial health by employing budgeting strategies also goes a long way. Here, we wrote about some of the best budgeting strategies you can use today to expand your savings while going about your day-to-day life.
Once you have a good understanding of your expenditures and a better grip on savings, you’re ready to move on to the next step.
Step Two: Consolidate Your Debt
If you’re new to the concept of debt consolidation, then you have undoubtedly been spending a lot more than you need on interest, which is surprisingly something that you can easily get around.
Consolidating your debt means rolling multiple debts, especially high-interest types such as credit card bills, into a single payment. That way, you can pay interest once, instead of several times, and usually get away with a lower interest rate.
There are two easy and accessible ways to go about your debt consolidation scheme.
One way would be to get a balance-transfer credit card, which is typically 0% interest, transfer all your debt onto the card and pay off your balance during the promotional period.
Another way would be to get a fixed-rate debt consolidation loan, use the money from the loan to pay off your debt completely, then take your time paying it off in installments over a set term.
Step Three: Make Smart Investments
Savings alone cannot protect you against inflation. On the other hand, hedging your funds in stocks, bonds, and commodities will ensure that your wealth multiplies, instead of depreciates, over time.
Gold, for instance, is a common choice in countries where the currency is gradually losing value, so much that it is sometimes considered an “alternative currency”. Real Estate Investment Trusts, or REITs, are another common choice, as property prices and retail income tend to increase with inflation. Government bonds are also a markedly stable investment, ensuring set yields regardless of economic conditions.
Overall, diversification is key. By understanding the different asset classes available to you and how they perform in periods of fast and slow growth, you can balance your investment portfolio to withstand different market conditions by choosing a healthy mixture of risk and reward.
Here, we wrote an in-depth article on the different types of asset classes, and how you can use them to compound your wealth.
Step Four: Set Aside An Emergency Fund
Not only does having money on hand help for when you are faced with abrupt financial challenges, but it also safeguards you against impending debt - a powerful income leak and something that can seriously harm your financial well-being.
Experts advise having enough money saved to cover an average of 3-6 months on little to no income. This ensures that your financial standing is not affected by sudden changes, and helps you function normally when you go through periods of sickness or turmoil.
With an emergency fund close at hand, you also don’t have to compromise on quality when you’re making big purchases. You can easily dip into your savings for a small amount to cover the price difference, and later pay it off at your convenience when you make a little extra cash.
Step Five: Invest In Your Home
Our final advice is to cover your bases.
By investing in your home, and making sure that it is well-equipped with furniture and appliances, you are warding off future charges that you will inevitably make, which may come at a time when you are unprepared.
Similarly, money spent on your home is never lost, as real estate prices continue to skyrocket. That way, if you plan to move out one day into a bigger home, you can rest assured that you will break even, or even make a small profit, upon resale.
What is your experience building and maintaining wealth during high inflation?