Imagine not being able to execute or having to postpone ten-year goals that were planned from a tender age. Before we go any further into this piece let us find out what exactly inflation is.
There are several definitions of this according to different perspectives. Still, the common factor is that inflation is the rise in prices and the decreasing purchasing power of money that affects the overall economy of a country.
This is brought about by the lack of balance between demand and supply. As simple as it sounds it can bring down the value of a currency. There is a lot to know, learn, and understand about inflation below are some of them;
Causes Of Inflation
Seeing as some of the reasons that inflation thrives are beyond anyone’s control, others can be managed if the right things are done. The causes are simple but incredibly effective in bringing about inflation.
The overall causes of inflation today include; cost push inflation, demand pull inflation, devaluation look, increased money supply, and rising wages.
Let us dig into some of these reasons.
- Cost-push inflation; is when prices go up because of high costs on the supply side. The suppliers do this to maintain constant profit margins.
- Demand-pull inflation; when the demand for a product or a service is higher than what is available for sale the sellers increase prices because of customers’ willingness to pay more.
- Devaluation; this is when a currency’s value diminishes because of its low exchange rate. This brings about an increase in the prices of goods and services.
- Rising wages; increasing wages contribute to worsening costs and push inflation because whenever this happens, there is a cost that ends up being a consumer burden.
Impact On Personal Finances
Personal purchasing power is the financial capability to buy goods and services. Inflation has a big influence on your ability to buy anything plus most of your lifetime goals will also take longer to achieve.
This is because when the cost of those things goes up then the money value goes down. When the purchasing power is reduced, it incapacitates the financial muscle of consumers who need goods in the market.
All these factors make it hard to have a constant lifestyle, one is forced to make tweaks very often to match the amount of money coming in.
The impact keeps increasing and adding on as time goes by. It also reduces the value of savings because of the interest rates against the inflation rates. There are some things one can put into practice to make these changes easier to manage like;
Expenses reduction
It goes without saying that when it becomes harder to allocate money to the regular needs it might be time to start cutting down on anything that is not as necessary. It is hard to give up some lifestyle habits that stick but are worthwhile.
Discern whether some of the damage is actually needed or simply a want. Developing a habit of doing things like this will help you ease into the situation while getting things done faster.
Invest and Increase Cash Flow
Tapping into those abilities that are not in use to earn some more money will go a long way in ensuring more plans and goals are achieved. This can be done by selling some art, getting online remote jobs, or a side hustle.
You will find that with more cash flow it is easier to cover all your expenses and still save enough. A great way to make use of savings is by investing in something that has a high potential of giving satisfying returns above the inflation rate.
These are some of the quickest ways of managing inflation and staying on top of it. Change is difficult but once doing this is fixed into your routine there is no going back.
Influence On Investments
Buying shares from any company or organization is a huge risk and a positive outcome is never guaranteed. Inflation makes this a nerve-wracking process because returns are much lower when an economy is experiencing hard times.
Fixed returns, like bonds, run a bigger risk of getting the worst hit by inflation because an increase in the cost of goods and services drops the returns of the initial investment. Stocks however have some security to some extent depending on asset class.
For instance, the effects of inflation may not affect a company that has high returns because of the hiked prices.
For business owners, inflation can be a big thorn in the side especially when they are suppliers. They experience this when the price of production is high they are forced to increase prices to meet the profit margin and even after this, they run a risk of having low sales. This strategy also affects their customers causing the cost push inflation effect because they will also increase prices as retailers to get returns.
In some situations, the business owners are pushed to bankruptcy after acquiring goods at a higher cost and later hiking prices. This is brought about by the price increment that customers run from.
When this happens the owner tends to lean towards closeout clearance sales. This is when a business owner decides to close down their business due to big losses thus they sell the products at discounted prices to clear their store.
To Wrap Up…
The topic of inflation is something that will always be at the tip of everybody’s lips because of the great influence and hold it has on economies. Whenever inflation hits, it is like a chain reaction that affects every single person looking to do something for themselves.
There is no control over it. All that can be done is devise new, innovative ways of managing the situation while getting things done. Adaptation is one of the easiest things to do in the long run but like every good thing there must be hurdles to go over before the finish line.
