Seven money tips against inflation

What can you do about inflation? In view of the high price increase (current inflation rate: 4.5 percent), many people are wondering how they should react to the high inflation. After all, many things are becoming more expensive, some prices are even rising much faster than inflation – for example, energy prices and petrol prices.

The most important finding: You don’t have to stand by and watch when inflation continues to rise and the prices for many products and services rise.

If you want to protect your money from inflation, you should consciously review your finances and expenses and also address the issue of investments.

It’s best to start right away! Then, you will see, it is really easy! So: What helps against inflation? Seven very specific money tips!

1. When prices go up: cut costs

An important way to protect your money from inflation and depreciation is to adjust your spending. Unfortunately, many people tend not to question or reduce the costs regularly, especially with regular expenses.

This is often possible without making any sacrifices. Typical examples of this are telephone or smartphone contractsinsurance, or bank fees. Check whether there are cheaper options for a checking account, credit card, or mobile phone contract. As a rule, a change should be possible without any problems. The advantage: You reduce your monthly expenses and have lower costs in the long run.

Another example: Anyone who pays off a loan has the chance of debt restructuring, especially in the current phase of low and negative interest rates, and could save a lot of money: a lower monthly rate with the same loan amount helps, for example, to reduce costs. The bottom line is that the lower monthly fixed costs leave more money for daily expenses.

2. What is the best investment when there is inflation

Especially with the low interest (or negative interest ) for savings, it becomes clear how dangerous inflation can be for savings: while prices are rising, there is no reasonable income for the money in a current account, savings book, or overnight money. Especially those who pursue long-term savings goals have to accept such a sensitive loss in the value of their money.

Therefore, the financial experts at Stiftung Warentest recommend “a broad mix” as the ideal alternative for investors: “The best protection against inflation is a broad portfolio with equity funds investing worldwide.” The wide diversification is intended to enable a high return opportunity while at the same time hedging against the price risks of individual shares.

This diversification of investments also plays a central role in ETF portfolios: the funds represent up to 5,000 securities from more than 40 countries. As a result, negative developments in an individual value hardly affect the portfolio value. We also ensure broad diversification for investors who invest sustainably. However, since only those companies are taken into account that achieves a top rating in the ESG ranking, the portfolios for sustainable investments include around 550 securities.

In contrast to savings accounts, time deposits, or call money, an investment with ETFs offers a clear advantage: if they achieve a return that is higher than the current inflation rate, a loss of purchasing power of the money invested is avoided. On the other hand, with the classic forms of saving, this is impossible due to the low-interest rate situation.

3. Pay particular attention to energy prices

The current increase in energy prices is particularly serious. This affects both the development of diesel and petrol prices, while electricity, gas and heating oil are also becoming more expensive. Measured against the previous year, the price development here is even stronger than the current inflation rate – and is often even over 10 percent.

Since energy consumption is usually very constant, this affects almost all households and companies in the US, as well as drivers and transport companies. But here, too, the significant price increase does not have to be simply accepted. On the one hand, energy costs can often be reduced by changing the contract. If you want to change your gas or electricity provider, you will find many comparison options, and you will be given a calculation of how much you can save by changing providers.

Further savings potential lies in lower energy consumption: Use targeted energy-saving tips to reduce your own electricity or gas bill. In this way, the costs can be reduced. Moreover, if the savings from switching providers and energy-saving measures are higher than the price increase, you even have more money available every month.

There are savings opportunities even for motorists: Refuel more consciously – i.e., at cheap times or at cheap gas stations. Internet price comparisons help. Sometimes the difference is up to 20 cents per liter. If you fill-up the tank, that makes a difference of around $ 10 for 50 liters. You can also save fuel by avoiding or reducing trips in a targeted manner.

Examples of this: Don’t go to the store to go shopping, but do it directly on the way home. Maybe it’s worth trying the bus, train, or bicycle as an alternative – this way, you could save energy and fuel costs.

4. Review personal expenses critically

Take the high inflation in the US as an opportunity to take a critical look at your own spending. Some do this by keeping a budget or using a budget app. Others make a very individual list of their regular and irregular expenses.

Why does a household book help with saving? Because it makes your own finances transparent and helps you structure your expenses. You should pay particular attention to regular costs, such as for subscriptions or contracts: Is the newspaper subscription really worth it? What types of insurance may be superfluous? Do you really use the health club contract regularly? What about Netflix, Spotify, or other services? It may also be possible to save money here by setting up a family account – as an alternative to each family member paying for their own contract.

5. Keep calm

Even if almost all prices are currently rising: the development of the inflation in the US is no reason to be unsure or to make hasty decisions. However, making even larger purchases quickly now because prices could continue to rise is not a good idea when answering the question: What helps against inflation?

For example, if you want to buy a new car in the next three years, you don’t need to fear the price increase – even though the current inflation rate is so high.

  • A price increase for the car price is to be expected. If it costs $20,000 today, the price could increase by $2,823 by 2024 if the price increases by 4.5 percent.
  • But anyone who invests $20,000 worldwide (e.g., with ETFs ) can expect an increase of $4,363 with an average capital market return of 6.8 percent. The car is also affordable in three years – despite inflation. If the return is higher than the price increase, there is even some money left over.
  • This only works if the money is invested wisely. There will be no increase in value in the savings book, checking account, overnight money or time deposit, or under the pillow that is higher than the current inflation.

6. Who should adjust their savings plan

However, the rise in prices also means that you should review your personal financial goals: Are you saving for a specific purpose, for a major purchase, a new car, a dream vacation, or a property? Then you should take into account that prices are rising and adjust your savings plan. With a good Robo advisor , you can usually do this easily with just a few clicks.

If you set up a new savings plan, it is worth planning for a certain price increase and setting the financial goal correspondingly higher. Then you no longer need to react to inflation and can sit back and relax.

A good Robo advisor constantly checks your ETF portfolio and automatically compensates through annual rebalancing if the weighting in the portfolio changes due to price developments. This ensures that the investment continues to suit you and your personal goals.

7. Don’t forget old-age insurance

When it comes to the topic “What can you do against inflation,” you should not forget one topic: your own security for retirement age, i.e., your own old-age provision. The general price development is likely to have an effect on your pension gap.

That’s why the following applies: When it comes to your financial goals, it’s better to plan a little more money for old-age provisions and security for retirement age. A long-term savings plan is worthwhile despite inflation – especially if there is still some time left before retirement.

Long-term investments benefit particularly strongly from the compound interest effect and can more than compensate for inflation with a decent average return. This sample calculation shows how well long-term investing is worthwhile: With an average annual capital market return of 6.8 percent, the increase in value after 10 years is already more than 93 percent; after 20 years, it is 272 percent, and after 30 years, even 619 percent.

Such a return remains a complete illusion with forms of savings such as savings accounts, call money, or time deposits – which is why an investment in shares (or share ETFs) is currently the best investment. A broadly diversified portfolio put together by experts significantly reduces the price risk. Because the return is not dependent on a single share value. A great Robo advisor, for example, map the performance of up to 5,000 securities from more than 40 countries.

Read also: Limitations of GDP as an Indicator of Welfare


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