How to take on inflation like a boss

If you are active in social media, then you must have read a barrage of explanation about the current inflation rate in the Philippines both complaining against and those providing informational context about it. I don’t want this to be another “Mansplaining’ about inflation.

To me, this situation is a good opportunity to learn more about personal finance and economics, which sadly reflects the state of financial literacy of our country.

What is Inflation?

It is the general rise in prices of goods and services. The value of the currency is reduced, which means more money is needed to spend on said goods and services.

There are basically two causes of inflation: 1) Demand-Pull inflation and 2) Cost-push inflation.

Demand-pull inflation is when the overall demand for goods and services in an economy is greater than production or productive capacity of the economy. This is triggered when a Central Bank prints more money/currency in circulation.

Cost-push inflation occurs when there is an overall increase in prices in production, consequently pushing the overall selling prices of goods and services.

This happens when there is an oil price hike as most industries use oil for production, increase in wages, increase in prices of imported goods necessary for production and consumption (PH is importing rice nowadays).

What are the factors for the 6.4% inflation?

According to the BSP governor himself, the spikes are due to the unfortunate confluence of cost-push factors and the elevated oil prices. Naturally, all other prices will go up. Plus, the soft increase in money supply by the BSP during the first half of 2018 plus the price increase effects of the TRAIN law.

In short, the inflation of 6.4 percent is a combination of demand-pull and cost-push.

A type of Inflation we don’t talk about

Lifestyle inflation is when you increase your spending to match an increase in income.

This type of inflation is something within our control, but we are mostly unaware of it since we are usually making emotional decisions.

Ways to Deal with Inflation

Inflation is a normal part of our economic life. Prices of stuff will always fluctuate based on supply and demand. Rising inflation rates can serve as a reminder for us to take a closer look at how we spend.

* Analyze Expenses and Prioritize Spending – Eliminate wants-based spending as well as non-essential expenses. Or perhaps substitute certain goods with cheaper alternatives and try a minimalist lifestyle. Stop spending so much money just to look rich.

* Invest in yourself – What is something that’s totally unaffected by inflation? It’s Knowledge and our Habits. It could be learning personal finance or developing a new skill or positive habit.

* Try Bartering – If you don’t want to spend money, how about we trade? Barter with friends or family. Skills for goods exchange or vice-versa.

* Increase your income – After lowering your expenses, you can try increasing your income through side-hustles, having a garage/yard sale by selling your stuff that you don’t use anyway. A Part-time job, project-based freelance gig and many more. Just google it.

To be blunt, make more money so it doesn't bother you.

* Diversify your portfolio – Regardless of the state of the economy, it’s always good to invest consistently. Having a long-term investment is one of the best ways to beat inflation. Treasury Bonds, Mutual Funds, UITFs, ETFs, Small Real Estate, insurance hybrids, PERA accounts are a few choices you can choose from. There's so much abundance and opportunities out there.

Try other investment vehicles such as real assets (precious metals for example) and others. Use the power of the internet to find out more about this. GO on, do it. Even if it's your first time, you'll definitely thank yourself in the future.

* Get quiet – Most of our decisions are shaped by those around us. We value other people's opinions too much. Whether if it's current events, personal finance or life goals, it is affected by our family, friends, and social media network of people. The bad vibes and negativity inside your head didn't come from you but from others. It was put there.

If your surroundings are becoming toxic, step back and keep a good distance away from it. If the people in your network are dragging you down, consider finding better friends. You are in control of what you consume in social media. You are in control of the relationships you allow yourself to be in.

These are not one size fit all methods that address how inflation is affecting your finances. I'm not a social justice warrior, and I'm aware I can't save the Philippines. But I can still pitch in. Help people gain more knowledge as it is something that cannot be taken from you.

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