How Inflation Shrinks Your Wardrobe and Your Wallet
So what exactly is inflation? Inflation is defined as a general increase in prices and fall in the purchasing value of money.
How Inflation is Like Buying Clothes That Shrink Over Time
Inflation is like buying clothes that shrink over time. The more they shrink, the less they fit you and the more you need to buy new ones.
In the same way, the higher prices rise, the less items your money is able to buy and the more you need to earn or save in order to purchase something.
This means that your money has less purchasing power or buying power. You may have heard people around you saying that the purchasing power has decreased. Or even that money is worth less.
Lets explore more about the purchasing power below.
What Causes Inflation and How Can You Avoid It?
Inflation is like a fashion trend that everyone follows. The more people demand a certain style or brand, the more the sellers can charge for it.
Similarly, the more people demand goods and services in the economy (the more they buy), the more the producers can raise their prices.
This relates to the law of Supply and Demand.
For example, let’s take the price of a t-shirt as being R100. The more people demand (purchase) that t-shirt, the more the seller will charge for it.
However, once people slow down buying that t-shirt it means that they’ve stopped demanding for it, the seller will realize that the t-shirts are not selling as much as before, and will then reduce the price, in order to try to gain more sales.
Once people purchase the t-shirt at the new, lower price, this will again increase demand for the t-shirt, thus pushing up the price again.
How to Be a Smart Shopper and Find the Best Deals
To beat inflation, you need to be a smart shopper and a savvy saver. You need to look for bargains, discounts, and quality products that last longer.
You also need to save money in accounts that offer interest rates higher than inflation rates.
To beat inflation, you need to invest your money in assets that appreciate in value over time.
This is similar to how fashion trends come and go, but some classic pieces remain timeless and valuable.
One way to beat inflation is to invest in stocks/shares or mutual funds that have a history of providing returns that are higher than the rate of inflation.
You will need to do your research before choosing which stocks/shares or mutual funds to invest in, as some stocks and funds can be risky while others are more conservative.
This is like investing in a classic black dress or a well-tailored suit that never goes out of style.
Another way is to invest in real estate, which has historically appreciated in value over time. You will also get a return on income in the form of rental income. Bear in mind that you will be a landlord in that case, and responsible to carry out the applicable duties.
This is like investing in a high-quality leather handbag or a pair of shoes that are both stylish and durable.
I find that investing in Real Estate Investment Trusts is a good way to invest in a conservative asset.
A real estate investment trust is a company that owns and sometimes manages income-producing real estate.
REITs own many different types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping centers, hotels and commercial forests.
Some REITs also specialize in financing real estate. So, once you’ve invested in a REIT you get paid out a dividend accordingly.
You can also consider investing in commodities such as gold or silver, which have been used as a store of value for centuries.
Other popular commodities are platinum and things such as the Kruger coin. Keep in mind as well, that these items or proof of ownership must be stored safely.
This is like investing in a piece of jewellery that has both sentimental and monetary value.
Another way of investing is to invest in yourself by acquiring new skills or education that will increase your earning potential over time.
Look for skills that are currently trending, where there is a large demand, and see if any of these skills interest you. Do short courses in those skills, or look for short certificate pro grammes if you would like something with more accreditation.
You are more likely to upskill in areas that interest you. There is also more likely to be a high demand in the number of jobs in these trending fields.
You can then add these skills and courses to your CV or resume and apply for jobs.
I find that constantly upskilling is a fascinating way of living, where you learn because you enjoy learning new skills.
This is like investing in a versatile wardrobe that can be mixed and matched to create new looks.
Remember, beating inflation requires patience and discipline. Just like fashion trends come and go, the value of your investments may fluctuate over time.
It can take years to build up enough investments to keep up with or beat the rising costs. However, by investing wisely and staying focused on your long-term goals, you can build wealth and beat inflation.
Happy investing!
