4 ways to protect your family’s aspirations from inflation

Table of Content

1. Introduction

2. Here are four ways to protect yourself from inflation.

3. Conclusion

Introduction

Rising inflation typically erodes the power of money. This simply means that if you don’t invest your money in the right assets today, inflation will leave an impact on your purchasing power for the future.

Further, as inflation increases the cost of all items, be it from your day-to-day food to fuel to input raw materials. These costs are inputs for many businesses and hence, leads to an increase in the price of the end products for consumers. The retail inflation in India was hovering above 7%* in June 2022.

Here are four ways to protect yourself from inflation.

1. Prioritize your goals

   Inflation is about the value of money today vs value of money tomorrow. Hence, it becomes very important to bifurcate your expense plan / goals into short term, mid-term targets and long-term goals. Once you have clearly identified the goals, prioritize them to map it with your current and future income levels. This will allow you to plan your cash flows in a much better way and save for the future combating inflation at the same time.

2. Carefully track your family’s budget

   All the expenses need to be evaluated and benchmarked against your budget. At the start of the month, prepare a budget and list down all the expenses with their potential cash outflow. Track the activities regularly and at the end of the month, compare them against the budget. It is very important to track and review whether the income and expenses are consistently under budget.

   The reason for such tracking gives you visibility on two things-

   1. Smaller but regular expenses
   2. Larger, one-time expenses

   Based on the data points collected, you can identify common bills that can be reduced (in amount) or cut down (in terms of frequency). The end goal of this activity is to enhance savings, and thereby, investments so as to battle against the increasing inflation in the future.

3. Practice goal-based investing

   Once you have identified your short-term, mid-term and long-term goals, you need to map each goal with investments that will help you achieve the goals. This is called Goal-based investments. For example, one of the long-term goals could be planning for your child’s education. Here is one such plan – HDFC Life YoungStar Udaan plan with a money back option for your child’s future goals.

4. Evaluate high interest yielding debt instruments

   Your assets need to be diversified. While considering diversification, you should evaluate debt instruments that can provide high interest yields. Increasing inflation affects the stock market negatively as the cost of goods for businesses increases, profitability takes a hit in the short run, affecting the stock prices in the market. Hence, debt instruments become lucrative investment alternatives as the cashflow in the form of interest is fixed and stable.

Conclusion

It is difficult to predict whether the inflation will further increase or decrease. Historically, the products have become more expensive year on year and there is no reason to believe the trend is not likely to continue. Following these simple steps will always leave you safe on a rainy day.

*Source: https://indianexpress.com/article/business/economy/india-cpi-retail-inflation-june-iip-factory-output-may-2022-nso-mospi-data-8025002/

ARN : ED/08/22/28514