Strategies for preventing financial losses during times of inflation

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THE recent collapse of banks in the United States and Europe left many people worried about the safety of their own finances. Last March 10, US Federal Deposit Insurance Corp. (FDIC) took control of Silicon Valley Bank. Two days after, FDIC shut down Signature Bank after a run on its deposits by customers. Then on March 15, Credit Suisse collapsed by as much as 30 percent. Then a day after that, First Republic Bank was on the brink as they experienced massive withdrawals from their customers. Then on March 19, UBS agreed to buy its ailing rival Credit Suisse for $3 billion. This event has sparked concerns about the stability of the financial system and the potential domino effect that it can bring even to the Philippines.

The problem with high inflation pushes the US Federal Reserve (Fed) to increase interest rates. Economists have frequently observed in recent months that it is surprising that the Fed has been able to raise rates so significantly and so quickly without significantly disrupting an economy that has gotten accustomed to extremely low borrowing costs. Until everybody woke up on March 10 shocked with the news on Silicon Valley Bank.

It can be difficult to manage one’s own money, particularly when inflation is high. The term “inflation” describes a persistent rise in the average price of goods and services within an economy, which can result in a reduction in purchasing power. Here are a few tactics to think about if you want to shield your money from the consequences of inflation.

1. Invest on items that will increase in value.

Investing in assets with an increasing return on investment is one strategy to shield your finances from inflation. This might consist of securities like stocks, homes and precious metals like gold or silver. These assets may grow in value more quickly than the rate of inflation over time, assisting you in keeping your purchasing power.

2. Diversify your investments.

Another crucial approach to consider in an inflationary environment is asset diversification. This entails distributing your funds among many asset classes, including stocks, bonds and real estate, as opposed to keeping all your funds in a single allocation. You can lower your risk and possibly boost your earnings over time by diversifying your investments.

3. Think about purchasing inflation-protected securities.

Bonds or other fixed-income instruments with an inflation protection feature are known as inflation-protected securities. These securities’ principal and interest payments rise in line with the rate of inflation because they are inflation-indexed or indexed to inflation. But it’s a challenge of fund availability in the Philippine market. By making an investment in these assets, you can contribute to preventing inflation from eroding your funds.

4. Examine your spending plan.

It’s crucial to constantly check your budget during periods of inflation to make sure you aren’t going overboard. Examine your spending to identify any areas where you might make savings. Look around for more affordable options, such as purchasing generic products or buying on discount either by bulk or during sale. You may lessen the impact of inflation on your purchasing power by cutting your spending. It’s high time to review your budget, look for things that you can let go off and just keep what is necessary.

5. Consider refinancing debts.

Consider refinancing to a fixed-rate loan if you have debt with a variable interest rate, such as credit card debt or other personal loans that charge a huge amount of interest. Fixed-rate loans have a set interest rate that won’t change, regardless of inflation. If you will refinance your loans, you can lock in a lower interest rate and lessen the impact of inflation on your debt payments.

6. Regular savings and investing.

Finally, it’s critical to regularly save and invest throughout inflationary periods. You can help shield your finances from the effects of inflation over time by continuously setting money aside in a savings account or investing in a varied portfolio. To make sure you’re continuously investing and saving, think about setting up automatic transfers into a savings or investment account.

In conclusion, personal money can be affected by inflation, but there are steps you can take to safeguard your finances. You may lessen the effects of inflation on your finances and preserve your purchasing power by diversifying your investments, buying inflation-protected securities, monitoring your budget, renegotiating debt, and routinely saving and investing.

Christopher Cervantes is a Registered Financial Planner of RFP Philippines. He is the author of the best-selling books Financial Planning for the Fast-changing World, Life Begins, and The Seed Money. To learn more about personal financial planning, attend the Chris’ Cervantes webinar: “Financial Planning for the Fast Changing World.” Register on this link: