How to cope with inflation
Inflation is the highest it’s been since December 2008, with October recording a 7.7% inflation rate . Inflation last month October 2022 was mainly due to the ongoing increase in prices for essential food items, according to the Bangko Sentral ng Pilipinas (BSP).
The average inflation rate for the first seven months this year was 4.7 percent, which is higher than the BSP's target range of 2-4 percent.
Let’s take a closer look at how inflation can change your spending habits.
What is the impact of inflation on a family budget?
Inflation is a key economic concept that can have a significant impact on Filipino families and their budgets. In simple terms, inflation is the sustained increase in the general price level of goods and services in an economy. This can lead to Filipino families having to spend more money on everyday items, which can put a strain on their finances.
Inflation can have a major impact on people's day-to-day lives, as they may find it difficult to afford basic necessities. For example, if the price of bread rises by 10% in a single month, this will likely cause hardship for families who are already struggling to make ends meet.
As prices increase, families must learn how to budget for inflation well. This can be a challenge, especially for those who are already living paycheck to paycheck. In some cases, inflation drives some into poverty. When prices go up, but wages stay the same, it becomes difficult for people to afford basic necessities like food and shelter.
Inflation can also lead to higher interest rates, as lenders try to offset the loss of value of their money. This can make it more difficult for people to obtain loans for major purchases, such as homes or cars.
If you're worried about inflation affecting you, here are some tips on how you can cope with inflation.
How to budget for inflation
1. Be mindful of your spending
It's important to be mindful of your spending, especially in today's economy. Tracking your spending for even just a few weeks can help you to see where you can cut back.
For example, if you spend PHP 500 a week on coffee, that's PHP 2,000 a month or PHP 24,000 a year--money that could be going towards savings or investments.
There are a lot of helpful budgeting tools available online that can make it easy to see where your money is going. Once you have a better idea of your spending patterns, you can start to make changes that will help you save money in the long run.
2. Have an emergency fund
An emergency fund is crucial for dealing with unexpected events, like a medical emergency or car repairs. Aim to have at least three to six months' worth of living expenses set aside so you know you can cover yourself in case of tough times.
That way, if you lose your job or have a major unexpected expense, you won't have to put it on a credit card and rack up debt. Instead, you can focus on getting back on your feet without the added stress of financial worry.
3. Invest in inflation-proof assets
Inflation-proof assets are those that maintain their purchasing power over time. In other words, they retain their value, even when prices for other goods and services are rising. This can be a valuable quality in uncertain economic times.
There are a few different types of assets that tend to be inflation-proof. One category is precious metals, such as gold and silver. Gold, in particular, has been used as a form of currency and store of value for centuries. Another type of inflation-proof asset is land.
While the price of land can fluctuate in the short term, it tends to increase in value over the long term. This is because there is a limited amount of land available, while the population continues to grow.
4. Save up for big-ticket items in advance
One of the smartest things you can do when it comes to making a big purchase is to start saving up for it in advance. This way, you'll be able to afford the item without feeling the pinch as much when inflation eventually takes its toll.
By doing this, you'll have a head start on your down payment, which will help you take advantage of lower interest rates. In addition, you'll also be less likely to experience buyer's remorse later on down the road.
Inflation can be unpredictable and it’s important to budget for it in your financial planning. At Metrobank, we offer financial education advice that can teach you how to save and invest for the future. Check out Money Basics now to learn more!
