How come $100 is worth a lot less today than it was 30 years ago? Even if you’re not a finance pro, you’ll probably know that the answer is inflation. What exactly is inflation? The most basic way to explain it is that, over time, the purchasing power of a currency goes down. That is, you will need more money to pay for the same service or product. More specifically, over time, money is not worth as much as it was before. There is no going around it, and what we can do is to simply equip ourselves to deal with inflation. How can we do this? Here are several simple tips to help you beat inflation.
Be a realist – accept the inevitability of inflation.
Let me reiterate: there is no going around inflation. It is the scheme of things, and even if you behave like an ostrich hiding its head in the sand, the world will continue to revolve as it does. There will be inflation, and you will feel it. The sooner that you accept this, the sooner you can take steps to deal with inflation.
Monitor inflation rates.
That stark truth having been stated, there is no need to slump your shoulders and feel depressed. The good thing is that we have all the information we need at our fingertips. You can monitor inflation rates via various media. If you really want to beat inflation at its own game, you ought to keep close tabs on the rate of inflation. With this information on hand, you will be able to adjust your strategy accordingly.
Invest in TIPS or I-bonds.
TIPS, or Treasury Inflation Protected Securities, is a good way to deal with inflation. These are special bonds that individuals can purchase. The values of these bonds are adjusted every so often in order to take the effects of inflation into account. Another kind of bond that you can invest in is the I-bond. This kind of bond also enjoys the ‘protection’ of the United States government and is sheltered from the effects of inflation to a certain degree. Of course, you have to be realistic and realize that bonds may become default. Still, the risk is lower than facing the effects of inflation – which is for certain.
Invest in gold.
You’ve heard it all before – gold is arguably the best investment that you can make. People will say do not invest in dollars. Don’t even invest in euros. If you want the most stable investment, go for gold.
Let me tell you, though, that gold is not as stable as some people would have you believe. In fact, if you look back at financial history, you’ll see that the value of gold has been repeatedly erratic. This is the thing: during peace time, the returns on gold are not good. During unstable times, that’s when you reap the benefits. The best way to view gold is as a ‘crisis hedge’ and not as your main investment.
Do not put all your money in a regular savings account.
I suppose putting your money in a regular savings account is so much better than keeping all your cash in a coffee can and burying it in your backyard. Stuffing your mattress with dollar bills is not a good idea as well. However, if you really want your money to be worth something significant in the future, you better not rely on a regular savings account. The going interest rates for savings accounts are too low for your earnings to keep pace with the rate of inflation. Your money barely earns anything when kept in a regular savings account. Instead, look for other options wherein you can invest your money. From bonds to mutual funds to businesses – these may pose varying degrees of risk, but at least they will help you have enough purchasing power in the future when inflations kicks in.
Invest in a business.
Businesses are a good way to deal with inflation. While you need to spend for a business – capital, operating expenses, and the like – you still make money off it. More so, the good thing about putting your money in a business is that as time goes by and inflation makes its effects felt, you can increase your income by charging more. This is exactly why purchasing power goes down – products and services cost more. With a business, you can make sure that your income keeps pace with inflation.
These are some of the ways that you can beat inflation and its effects. It is by no means an exhaustive list, but it is definitely a step in the right direction.