How you can protect your savings from inflation?
Inflation affects the cost of everything, from basic goods like edible oil, crude oil, and vegetables to big events like education, foreign trips, or property rates.
This year, inflation reached its all-time high at 7% and has maintained that record over the past 3 months.
This means your savings need to beat the rising inflation rate before inflation beats your savings.
To protect your savings from inflation, you need to consider multiple investment instruments. Relying on fixed deposits, land or gold alone is not enough.
Beating inflation requires a financial plan that distributes your money wisely across different saving and investing options. It allows your money to work in different areas – like mutual funds, bonds, PPF, Digital Gold, ETFs, and much more.
How can the average Indian investor beat inflation?
By gaining financial knowledge and opening up to investment, risk, and newer opportunities, the average Indian can beat inflation.
If you are a young adult in your 20s, then saving in FDs or stashing your money in a savings account is not enough.
You need to start exploring different alternatives that can benefit from the power of compounding and help you create a corpus for future needs.
Savings accounts in most banks offer a 2% annual rate while 5-6% interest rates on fixed deposits. These interest rates fail to compete with the growing inflation rate of 7%.
Thus, by saving on these instruments, you are likely to reduce your purchasing power and lose money rather than gain from them!
Ways to protect your savings from inflation
1. Manage your expenses
Budgeting is the only way to ensure you don’t overspend or live paycheck to paycheck. Your cost of living should be less than your monthly income so that you can invest or save a part of your income.
By budgeting, you may be able to spare a bigger portion for this cause. Tips to manage your expenses-
Follow your expenses carefully
Pay bills and EMIs on time to avoid penalties
Go for cheaper alternatives for food, clothes, and gadgets
Cutback on eating out, unnecessary subscriptions
Develop productive habits
2. Look for long-term investing options
Domestic and international stocks, bonds, and equity funds offer great returns on your initial investment. Sometimes double the returns as opposed to FDs, gold, and even property.
These investments are great for those who wish to remain invested for 10-15 years, maximize their gains, and allow the market to average out the risk and loss.
The beauty of the share market is that in the long run, it corrects itself and rewards its oldest members.
3. Go beyond PPFs and FDs
Beating inflation means looking past PPFs and FDs, stocks, gold, and exchange-traded funds (ETFs), mutual funds can help you diversify your investment and savings.
This does not mean that you need to break your FD or PPF plan, it means starting a small SIP for Rs. 1000 or more for mutual funds or ETF can help you save better and reap the benefits of compounding.
4. Invest in gold and real estate
Gold is a natural deterrent against inflation; the rise of gold rises with inflation which means gold will remain an ever-green investment as long as inflation is here. But don’t restrict yourself to physical gold, invest in digital gold, gold ETFs, and sovereign gold bonds.
Similarly, in real estate, the cost of the property rises as well as rent with inflation Thus, invest in property or through real estate investment trust (REITs).
5. Mutual funds and ETFs
A SIP as low as INR 500 can help you stay financially secure in the near future. There is a good reason behind the popularity of mutual funds and ETFs, these are great instruments for beginners as well as professionals.
Mutual funds are managed by a fund manager who invests on your behalf. This means you get to protect your savings from inflation without any effort.
Don’t let inflation eat at your savings. Invest wisely and remember that the cost of commodities is only going to increase so should your savings.
How do you stay ahead of inflation?
To stay ahead of inflation, consider investing in assets with returns that outpace inflation, such as stocks, real estate, or commodities. Diversify your portfolio to spread risk. Focus on long-term investments, maintain a budget, and periodically reassess your financial strategy to adapt to changing economic conditions.
How do you manage inflation times?
During inflation times, manage by diversifying investments, focusing on assets with historically inflation-resistant returns, and avoiding excessive cash holdings.
Where do I put my money during inflation?
During inflation, consider allocating your money to assets that historically perform well in such conditions, like equities, real estate, commodities, and Treasury Inflation-Protected Securities (TIPS). Diversify your investments to spread risk and preserve purchasing power. Avoid keeping excessive cash, as it may lose value during inflationary periods.