SMART TIPS TO BEAT INFLATION
· Inflation is the rate at which the general level of prices for goods and services rises, and subsequently, purchasing power of money falls.
· To combat it, focus should not be on ‘capital protection’ but on ‘purchasing power’ protection.
· If your money fetches returns lower than the inflation rate, you are actually worse off in terms of your buying power, even if you have saved over the same period.
· If you are a taxpayer, it is even worse, depending on your tax slab rate.
· If this situation continues over several years, you become worse off every year and may end up in a bad situation when you retire.
1. Spending tips
· Put money for different expenses in separate envelopes every month, and stick to each.
· If a certain envelope consistently runs out of money before the end of the month, you need to either allocate more funds under that head or examine the reasons for the overruns.
· Distinguish your needs from your wants before shopping.
· Make a list of purchases before you go, and stick to it.
· Shed your brand consciousness and buy an unbranded item that can cost up to 50% less.
· Curb impulse spends by waiting for at least 3 days before buying, and ask yourself if you really need to buy that item.
· Compare prices of appliances and household items online, even if you intend to buy them in retail showrooms, as it helps you see through the fake discounts.
· Hire VCDs/DVDs from a library instead of seeing the film in a multiplex.
· Use credit cards to optimize the 45-day free credit period, but pay the full bill by due date.
2. Consuming tips
· Don’t shop on an empty stomach as you will pick up more foodstuff than you need.
· Avoid costly imported foodstuff when you can make do with the cheaper local variety.
· Stock up on non-perishable items during a sale by keeping an eye open for bargain seasons.
· Avoid buying perishable items in large quantities, even if there is a big discount, to save on waste.
· Take a lunch box as well as a tiffin box to the office to curb daily canteen or café expenses.
· Replace ordinary bulbs with CFL lamps to save monthly power consumption.
· Maintain your car tyres’ pressure and drive at an optimum speed by using the right gears.
· Get your car serviced regularly for boosting your mileage and reducing oil consumption.
· Form a car pool to cut your daily transportation cost to the office.
· Optimize the use of your physical assets, like house, vehicles, appliances and everything else you have acquired from your income.
3. Investing tips
· Don’t let money idle in your savings account, and park it in a sweep-in deposit account.
· Have a diversified portfolio with 10-15% in growth assets like stocks and mutual funds.
· Aim for a post-tax rate of return that would be higher than the rate of inflation every year.
· Use gold as a hedge against inflation, but don’t put more than 10% in it.
· Take advantage of the cost inflation index to bring down your annual tax liability.
· Whenever you invest, keep in mind the objective for which you are doing so.
· Remember to monitor your portfolio on a regular basis, preferably yearly, but refrain from looking at it on a daily basis and acting on it.
· Your objective should be like planting a tree, nurturing it and then, after specific years, enjoying the fruits.