As the world comes to terms with the Covid-19 pandemic, inflation has taken hold across the globe, including in New Zealand. That has prompted central banks to respond with interest rate hikes, which have created a double-whammy for many households. Ring a bell?
If it does, here are some steps you can take to inflation-proof your finances.
Make a budget
When things are becoming more expensive, it’s more important than ever to understand exactly where your money is going.
If you don’t have a good household budget in place, now can be a great time to draft one up. Understand what’s coming in, what’s going out and what surplus is left over. Go through your bank statements to get a clear picture of what you’re really spending, rather than what you’d like to be.
This could be a good opportunity to review your bills – could you get a better deal on your power or phone? Do you have lots of subscriptions being charged to your credit card that you don’t really need?
Pay down your debt
While inflation erodes the value of debt over time, the interest rate rises that usually come with it can make holding it more expensive.
If you have debt, now is a good time to focus on getting rid of it, if your income allows. Reducing the amount you owe might reduce your exposure to future interest rate rises, too.
If you have really expensive debt that you’re struggling with, consolidation could be an option. A lower interest rate can mean lower repayments, which helps if your budget is under pressure.
It’s good to get advice on this, though. If your loan takes much longer to repay, you may find it costs you more over the long run.
If it’s credit card debt you’re worried about, you may be able to qualify for a low or no-interest balance transfer deal. (But watch out – some people treat this as a licence to start spending on the initial card again!)
Invest
Although interest rates have risen a lot from their historic lows, the rates on offer from bank savings accounts still aren’t keeping up with inflation.
That means it’s more important than ever to make sure your money is working hard for you, and holding on to its value. We can help you make sure that your investments are in the right place for your circumstances and risk profile.
Have an emergency fund
It’s always a good idea to have a savings account set aside in case of emergencies, though this can be a bit harder to do in an inflationary environment.
Try to save an amount equal to a few months’ worth of your income. This is especially important when your day-to-day essentials are becoming more expensive. It’s great for peace-of-mind to know that you have some money to fall back on, should something unexpected happen.
Ask for a pay rise
If you’re employed and it’s been a while since you had a decent pay rise, now might be a good time to see how receptive your employer is to the idea of boosting your salary.
If times are tough for the business, too, you might be able to negotiate some other, non-financial perks, that could make your life easier. If you can negotiate working from home for a few days a week, for example, you might save on the cost of commuting and buying lunch.
Like to talk?
Inflation is a new challenge for many people. If you’d like to talk about your situation, and how you can remain on track for the best financial future, get in touch with us today.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
