Inflation is the general increase in the prices of goods and services in an economy. Consequently, inflation corresponds to the reduction in the purchasing power of money.
The three types of inflation are built-in inflation, demand-pull inflation, and cost-push inflation.
Demand-pull inflation happens when the demand for goods and services is higher than the supply. On the other hand, cost-push inflation occurs when there is an increase in the cost of production.
When the cost of raw materials and general production costs increases, the producers, in turn, must raise the prices of goods and services regardless of the demand.
If employers don’t keep their wages competitive, they may lose employees, and this may cause a labor shortage. If businesses raise wages for their employees and the prices of their goods and services to maintain profit margins, that’s built-in inflation.
Inflation has adverse effects on an individual and the nation’s economy, and we must be prepared to survive during such times.
Here is how to manage money during times of high inflation
Cut on expenditures by prioritizing basic needs. Here is how to go about it
- Opting for public means of transport other than private means, which is at times way too expensive
- You can also always prepare meals at home rather than ordering from restaurants.
- Avoid unnecessary online shopping, which is very addictive and, at most leads to impulse buying.
- Go shopping with a shopping list and stick to it.
- Get on a budget. Set aside money for miscellaneous spending and only use that.
To survive strikes by high inflation, we must have an emergency fund. This is a separate saving meant to cater to unexpected expenses. It also comes to use in cases where one loses their job. In the case of inflation, it can help cover some of the expenses.
Trying to plan not to be affected by high inflation rates, we can choose to invest in assets that are either not highly affected by inflation or those whose returns outpace the inflation rate, such as real estate.
Since inflation is natural in any market economy, we must have alternatives for a living if not survive when it strikes.
