Nigeria’s headline inflation surged to over 5-year high in April (13.7 percent from 12.8 percent in March) according to recent data from the National Bureau of Statistics (NBS). Inflation is an enemy of both consumers and investors. This invisible force eats away at both your purchasing power and the returns you receive on your savings and investments as the prices of goods and services rise. The time to think about how to protect your savings from its ravages is long before it actually strikes. The question is, what action can you take to stop inflation from eroding your wealth? Here are some ways to cope with inflation:
Create a budget and stick to it
A budget will help you identify exactly where your money is going. By tracking your expenses, you can begin to rein them in. Cutting back is one of the easiest steps you can take to keep more money in your pocket for essentials. Review all your routine expenses: For example; do you have to order a takeaway lunch every single day? It takes no time to prepare a packed lunch and will save you thousands of naira each month. Can you monitor your utility bills and be more conscious of them?
It is worth sitting down with your family to have a chat about money matters. There is no point struggling to rein in costs whilst your spouse or children continue spending with impunity; each member of the family can contribute to the discussion.
Reduce your debt
Pay off or at least reduce your most expensive debt as soon as you can. Credit card debt, in particular, is vulnerable to increased interest rates and that would put more and more pressure on the family income, which is unlikely to increase for now and is already stretched with the price increases on even the most basic necessities.
Don’t keep too much cash
If you are earning 4 percent interest on your savings, and the inflation rate is well over 10 percent, then you are actually losing money and not earning anything at all. However, we all need some cash particularly for unexpected events and emergencies, so certainly do maintain your emergency fund during periods of uncertainty; but remember your money is literally worth more today than it will be tomorrow.
Stock up on non-perishables
The price of food is one of the first things to be affected by inflation. Stock up on household staples such as Garri, rice and other non-perishables to provide a cushion for a few months whilst you adjust to the new prices. Don’t keep perishables, as with the epileptic power supply, food is bound to go bad. It is easy to over buy or panic buy; If you buy in bulk which is usually cheaper, share the produce and split the cost with friends and relatives, or it will end up being a waste.
Spend if you need to
Sitting on cash will cost you in the long run. Are there things that you need right now but have been postponing? If there are durable items that you need and you have the funds, it is probably best to buy them now. Do you need to buy a new generator, inverter, or new tyres for your car? Don’t wait too long if you can afford to buy them now.
Reduce your transport costs
With the drastic increase in the price of petrol, we all need to find ways to reduce our transportation costs. There are only two solutions to reducing your transport costs. Drive less, and drive a fuel-efficient car. Do we all need to be on the road at the same time? Do you have colleagues or friends who live and work near you? Sometimes sharing a car can make better sense than driving yours everyday. Car-pooling can be a good travel solution as the fuel costs are split. You will reduce your costs as well as the stress of driving each day.
Do you need 3 cars? How often do you drive each of them? Can you sell one of them and use the proceeds to subsidize your transport costs or share costs with others? If you are struggling with your fuel-guzzling jeep, perhaps it is time to buy a more fuel-efficient car for your daily use. Be strategic and purposeful in deciding whether to keep, sell, or purchase.
Invest in property
Over long periods, property prices tend to outpace inflation. If you have cash to spare, now may well be a good time to invest. As with all investing, seek professional advice and ensure that you have all the essential documentation in place.
Invest in stocks
If you have the capacity and tolerance for volatility, the stock market is a good option. Indeed, inflation is a key reason why equities are better for long-term investments. Cash and bonds may sometimes seem likely to yield a higher income at less risk, but there is evidence to show that stocks have outperformed other asset classes over the long term and are a good hedge against inflation. The key is that you must be thinking long term.
The cheap, easy way to own stocks is through an equity mutual fund that tracks the stock market index. If you already have some savings to tide you over for your short-term needs, and your debt is under control, then consider investing.
Do you have to buy brand new?
It is time to shop smart and to get value for money. You don’t always have to buy everything brand new. There are very good resale online stores that offer nearly everything you will ever need including used vehicles, tools, household appliances and furniture in perfect condition even though they are second hand. Don’t feel that you always have to “keep up;” be practical and get what you need at affordable prices. There is nothing wrong with buying second-hand if it is in good working order. You can also place own appliances and furniture that you don’t need in the market place. Apart from getting rid of much clutter, you will also make some money.
Education costs
Fees for private schools rise each year. Bursaries and scholarships are available but only for the brightest. If you pay school fees a year in advance there will usually be a discount, and you would have locked down any further increase at least for this academic year.
Guard your health
The cost of medical services has been growing steadily and now it is likely to go up even further with the industries dependence on fuel and foreign exchange. Up the odds of staying healthy by exercising regularly and eating a healthy balanced diet. We must learn to build leisure into our lives to cope with the stress of our environment. We’ve all heard this before but it matters now more than ever. You don’t want poor health and expensive medical care to add to your financial woes; certainly not now.
In the final analysis, it is important to stay positive. Inflation is one of the most common financial facts of life. The short term may be uncertain but focus on what really matters; the love of family and friends, and your health.
Nimi Akinkugbe
Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.
