The same goods you bought last year cannot be bought this year with the same amount of money because the prices have quadrupled. Does that sound familiar? That is what inflation does to your purchasing power, it reduces it.
Nigerians are currently grappling with the effects of inflation. Every sector of the economy has been badly hit by this especially, food and transportation—subsidy was removed on petrol. According to the National Bureau of Statistics (NBS) as of June 2023, inflation stood at 22.79%. Food inflation spiked to 25.25% in June 2023 compared to 20.60% in June 2022. For a country that has more than 133 million of its citizens living in multidimensional poverty, another report from the NBS in June 2023, this will bring untold hardship to the larger population.
Coping with this new reality can be challenging but there are strategies you can come up with to help you mitigate the impact of inflation on your financial wellbeing.
How to Cope With Inflation and Manage Your Finances
Budgeting and Prioritising: Create a comprehensive budget that accounts for all your expenses and income. Prioritise your spending on essential items, such as food, housing, and healthcare, while minimising non-essential expenses. Having and following a budget will help you manage your finances in a period of inflation.
Diversify Investments: Inflation erodes the purchasing power of money, therefore, you should make wise investment decisions. Diversify your investment portfolio. This is advisable because inflation may not have the same impact on different sectors of the economy. For example, if the commodities market is affected, real estate may be booming. This will reduce the risk and help you cope with inflation.
Invest in Yourself: This will increase your chances of staying relevant in the ever-dynamic business world and also increase your earning. Inflation oftentimes affects jobs. Companies have to make the tough decision of retrenching their staff go but if you have the essential skill needed to run the company, your job will be protected. Self-improvement hedges you against job loss during an economic recession.
Pay Down Debt: Inflation can decrease the real value of your debt over time, making it advantageous to have fixed-rate debts during high inflation periods. However, variable-rate debt can become more expensive to service. If possible, focus on paying down high-interest debts to reduce financial strain in an inflationary environment.
Diversify Your Income: Take on side gigs to augment your income. More income can help you absorb the impact of rising prices.
Build an Emergency Fund: An emergency fund is crucial during an inflationary period. In case of a job loss or an unplanned expense arises during this period, you would have something to fall back on.
Inflation is beyond your control and can happen at any time. So, always be prepared financially when it hits.
Read Also: How to Attain Financial Freedom
