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We’ve partnered up with The Savvy Expat to create a video format for this extensive guide. Don’t have the time to read? Check out the video version below!
When I was in college, me and my friends would treat ourselves to McDonald’s Apple Pie whenever we finished a major exam. For Php25, it was the best “expensive” dessert that we could get with our measly baon.
Just last week, I thought I’d treat myself to the same dessert I used to love, and I was shocked to find out that it was already Php35. In just a few years, the price has risen to a whopping Php10.
This price increase isn’t just true for McDonald’s Apple Pie. Almost every single thing you can buy in the Philippines (and around the world) has increased in price.
If you walk around the supermarket, the prices of goods are now at an all-time high.
Gasoline is going up. Transportation, be it personal vehicles or public transportation, is going up. Education is also going up. Even bills you pay to the government are going up.
This is called inflation.
Dealing with inflation is no easy feat. If you think your bills are expensive now, can you imagine how much more you’ll pay in 10 years?
This is why as early as now, you have to know how to future-proof your income to overcome inflation. In this guide, we’ll let you in on the best tips to beat inflation.
Related Guides on Future-proofing your Income:
- 10 ways to increase your income in the Philippines
- Income protection: how to protect your income in uncertain times
What is Inflation?
Inflation is the decline of purchasing power over time. This is generally attributed to the increase in the price of goods and services.
Although it’s easy to measure the increase in the price of individual expenses, it’s important to understand that everyone’s needs extend beyond just a few products.
After all, I’m not going to survive on buying McDonald’s Apple Pie alone for the rest of my life.
People need diversified goods and services to live a comfortable life. This includes food, entertainment, healthcare, labor, transportation, and many more.
Inflation measures the overall impact of price increases for a set of products that people need.
In the Philippines, inflation has accelerated to a whopping 5.4% year-on-year in May, according to the Philippine Statistics Authority.1
The Bangko Central ng Pilipinas or BSP admitted that it may miss its inflation target for 2022 due to a global supply problem caused by factors such as the pandemic, and the ongoing conflict in Ukraine.
How is inflation measured?
The most important indicator of inflation is the Consumer Price Index or CPI. This measures the percent change in “market baskets”, which comprises goods and services selected to represent price behavior.
15 Ways to Beat Inflation
Inflation is an unstoppable force. While you can’t stop it, you can fight it. In this section, we’ll give you some easy tips to beat inflation.
Invest in a business with low capital needs
“The best businesses during inflation are the businesses that you buy once and then you don’t have to keep making capital investments subsequently.”– Warren Buffet
According to American business magnate and investor Warren Buffet, this tip is something you shouldn’t fail to do.
As such, do not invest in something that will require continuous reinvestment. As the value of the Philippine peso drops, this investment will only end up continuously eating up your money
Inflation is caused by a rise in the supply of goods and services. But the great thing is that there are businesses you can invest in that don’t require huge capital.
For example, look for a business where you won’t have to buy land, big equipment, buy raw materials, or hire extra people. This can help you save money in the long run to avoid inflation.
Invest in companies that raise prices during high inflation periods
If you want to safeguard your wealth against inflation, try to look for companies that would offset the cost of rising prices. This can be done by assessing which sectors raise their prices during this period.
For example, although healthcare is one of the sectors that are most affected by inflation, it raises its price during inflation. Another sector you should consider is the energy sector, specifically gas and oil.
Investing in inflation-proof & income-generating assets
If you’re currently working, your priority may be to save for retirement. However, it’s also vital to work towards protecting your money from inflation even before you retire.
This idea may seem too good to be true, but it’s possible.
Aside from investing in index funds, try real estate investing. For example, you can buy real estate properties and rent them out, or sell them for a higher price.
You can also buy gold, silver, and other precious metals. Because these are highly liquid, they can easily be converted into cash if an emergency situation arises.
Acquire high-paying skills
One of the most surefire ways to fight inflation is to acquire new skill sets in high demand. When you follow this tip, you’ll be able to command a higher pay since your clients/customers wouldn’t want to lose you.
If you’re a skilled worker, you’ll have many job opportunities to choose from and a wide range of employers to bargain with when negotiating your pay.
As much as you can, dedicate some time to learning something new. It can be art, music, science, technology, or any other field.
Also research emerging fields that have a growing demand and are recession-proof, such as data science or digital marketing. This can be the key to securing your future.
The more skills and knowledge you have, the more options you’ll enjoy, which means that you can make more money in the long run.
Side hustle & create multiple income streams
This is one of the best tips for beating inflation. After all, having only one source of income will put you at risk of losing your capacity to earn money.
Think about it: what will happen if you suddenly lose your job?
Even if your job is paying you well, making money on the side will allow you to have a “safety net” that will keep you from going under should your main source of income disappear.
You don’t need to look for another job per se. What you can do is find a side hustle that will increase your earning potential.
Need ideas on side hustle to try? This in-depth guide may inspire you.
Stay away from traditional bonds
Modern businesses can be unpredictable and can often fail. For this reason, you should stay away from traditional bonds.
Traditional bonds are financial instruments where you give your money to a financial institution and it pays you back with interest. This means that your principal amount is at risk if a company goes bankrupt.
Stop your problematic spending habits
One of the easiest ways to beat inflation is to stop your problematic spending habits. If you’re the type who spends more than what you earn, then you’re going to suffer heavily if the value of your money drops.
Stopping bad spending habits may include constantly eating in expensive restaurants, going to the mall, buying expensive gadgets, or gambling.
However, remember that it comes to spending money, the key is to be value-conscious, not to deprive yourself.
Invest in your retirement plan
For individuals who are still employed, investing in your retirement plan is an excellent option to hedge against inflation. Unfortunately, only 37.2% of Filipino netizens are saving for retirement.
Thankfully, there are many ways to work on your retirement.
For example, you can go with pension plans which are designed to provide fixed income and benefits for as long as you live. One popular pension plan in the country is facilitated by SSS. You can also get a pension plan provided by an insurance company.
Aside from this, you can also invest in Personal Equity Retirement Account (PERA). This has been implemented into law in 2016 and is the Filipino equivalent of Individual Retirement Account (IRA) in the US.
This retirement investment plan can only be availed through insurance companies, banks, and other administrators credited by the BSP. This voluntary contribution is also tax-free.
Another thing you can do is to invest in inflation-proof assets (as mentioned above). For instance, invest in real estate properties or any other asset that can appreciate on its own. During times of inflation, the value of your real-estate properties will increase.
Moreover, gold and other precious metals have been used as a means of storing wealth for generations. This makes it the most reliable investment in times of uncertain inflation.
You can also invest in equities. These are financial products that allow you to invest in the shares of a company. When choosing equities, look for a company whose products and services are in high demand.
In short, look for investments that will grow in value over time.
Look for tax efficiencies
Looking for tax efficiencies is another way to beat inflation. But first, make sure to practice tax planning which involves looking for ways to lower your tax liability.
This can involve planning which expenses can be deducted from your taxable income, or applying for tax credits. You can also look for investments that would qualify for tax deductions.
For example, you can consider an optional standard deduction where you have the option to declare that 40% of your income is your expense. When you do this, only 60% of your income will be taxable.
Aside from that, you can also declare incurred losses.
However, make sure these losses are related to trade, profession, or business, as evidenced by completed and closed transactions, sustained and written off during the year, and not compensated by insurance.
Don’t keep too much cash on hand
Ask yourself, if you have a Php100 bill and inflation eats Php10 out of this 100 bill in 5 years, will you be able to buy the same thing you would have bought with Php100 5 years ago?
As you can see, it’s not worth it to keep too much cash on hand. It’s better to keep your money in something that can grow in value or has a fixed rate of return.
Prioritize your savings
So if it’s not recommended to keep too much cash on hand, where should you keep your money? The truth is, most traditional banks offer a measly interest rate that you can’t even feel.
One thing you can do is open a high-yield savings account. These accounts allow you to earn more interest on your deposits.
Take a look at this table to see different high-yield savings accounts you can open in the Philippines.
|Maya Bank||Up to 6%|
|Tonik Bank Stash||4% (solo stash) to 4.5% (group stash)|
|Diskartech||Up to 3.25%|
|CIMB GSave||Up to 2.6%|
|Komo||Up to 2.5%|
|ING Save||Up to 2.5%|
|Citibank Peso Bonus Saver||Up to 1.66%|
Related Guides on Saving:
Prioritize making a budget
Around 62.5% of Filipino netizens follow a tight monthly budget plan for various recurring expenses. Having a budget plan can help you make it a habit to live within your means.
Moreover, budgeting enables you to keep track of your spending and see which expenses you need to cut down. Thankfully, budgeting doesn’t have to take up much of your time.
You can leverage various money management software and apps to make your financial planning easier such as:
- Honeydue (for couples)
- Personal Capital (for investors)
Pay off existing debt
Debt is a major burden for many Filipinos, especially among those who live on a limited income. This is because debt will only end up eating up your disposable income as its interest grows.
When you pay off your variable debt, you’ll immediately feel a positive impact on your monthly budget.
Doing this will free up your working capital and allow you to gain interest on the money you would have used to pay for your debt.
One way you can free up some money for debt payments is by cutting down on your expenses. Keep a tight watch on your budget, and try to find any excess baggage.
With a budget plan in hand, it’ll be easier for you to find money to pay your debts.
Have an emergency fund ready
A financial emergency can happen anytime. A family member can get ill, your car may break down, or you may need to settle work-related expenses that you didn’t plan for.
An emergency fund is your safety cushion for all these expenses. It serves as a buffer so won’t end up in debt.
Despite the importance of having an emergency fund, a shocking 75.8% of Filipinos don’t have an emergency fund with more than Php50,000 in it.
How much you need to put aside in your emergency fund depends on your expenses and your risk tolerance.
Generally, an emergency fund should be equivalent to 6 months’ worth of your living expenses.
Don’t panic (and prepare for the future)
Everybody has dealt with inflation. Your parents, grandparents, and even your great grandparents.
For this reason, you shouldn’t panic about it. Inflation is inevitable. It has happened in the past, it’s happening now, and it will continue to happen in the future.
At this point, it’s already part of our lives. So instead of dwelling on it, simply make the most out of your money.
As long as you make responsible decisions, work hard and be financially responsible, then you have absolutely nothing to worry about.
At the risk of sounding cheesy, remember this: People who have a positive outlook on life are more likely to be happy, and happiness can help you cope with challenges, especially when it comes to money.
As long as you prepare for your future, you will be able to withstand any crisis.
The key is to start NOW – it doesn’t matter if you just graduated college, or if you’re already in your 50s. The best time to protect yourself from inflation was yesterday. The second best time is today.
By investing in real estate, stocks, and other possible income streams, your money will grow with inflation. Therefore, you will be able to make a profit once the economy has stabilized.
Like anything else, do your research before you put any money into a certain investment. This way, you know all the risks involved. Historical data and market trends are your best bet to make sound investment decisions.
Image Credit: International Monetary Fund