Inflation can be very stressful and drain your mental health and your pockets. Roger Scott is an expert trader and entrepreneur with over 25 years of experience trading everything from ETFs to stock options. He is also a top member of WealthPress.
WealthPress provides its users with the best investment products and services to help them navigate the market and improve as investors. Roger Scott has outlined below everything you need to know about Inflation.
What Inflation Does To An Economy
Inflation Causes An Increase In Interest Rates
There are currently limited ways that the Federal Reserve turns to control Inflation. One such method is increasing interest rates. This increase in interest rates makes it even more expensive to take loans.
The significant impact of this is that it prevents the majority of households who depend on loans from making substantial purchases from doing so. It also adversely affects people who have debts with variable interest rates.
Inflation Causes A Loss Of Purchasing Power
One of the significant impacts of Inflation is the loss of purchasing power, which is due to the higher prices of goods and low or fixed income of consumers. Inflation affects consumers with low or fixed income most because their income remains the same while the prices increase.
Inflation Slows Down The Economy
Inflation causes a reduction in cash supply, and this further influences credit to be more expensive and the requirements to tighten. Since many consumers need credit to make major purchases, the tightening of credit requirements will pose an obstruction and, thus, slow down the economy.
How To Stay Afloat During An Economic Downturn
Ensure You Have Multiple Streams Of Income
One of the crucial things to do to ensure you stay afloat during an economic downturn is to have multiple income streams. Multiple income streams will help to strengthen your purchasing power even when the prices of goods increase.
For clever investors, being able to identify breakout stocks for potential big gains will also help during economic downturns.
Save Money For The Rainy Days
Another significant way to reduce the impact of Inflation on your finances is to save towards rainy days. Setting aside a certain sum of money each month will help you generate a reasonable amount of funds you can tap into when things get more complex.
You can also use an automated saving system that sets aside a certain amount of money from your account every month into a savings account.
Evaluate Your Spending Habits And Readjust Your Budget
It is time to re-evaluate your spending habits during an inflation season. Cut off as many unnecessary costs as possible. This will help you trim your spending to fit the season’s demands. You should also readjust your budget to include necessities as you can afford.
Avoid Variable Interests
Variable interests can be a good option until there’s Inflation. Varying interests on your debts during Inflation can cause a devastating dent in your finances. This is because the interest rates rise during an inflation period, and so will the interest on your debts. It is advisable and safe to stick with a fixed-rate interest.
Also Read: Is Investing in Gold Still Relevant Today