Cent, five cent, ten cent, dollar… what does your money say!

By Finbar Garcia LUTCF, FSS, MFA

Scripture teaches that money is a tool for stewardship, not a master, urging us to avoid loving it. It also encourages us to work hard to earn money (Prov 10:4) and planning ahead (Lk 14:28).

While money is needed for almost everything in life, and is an essential part of your daily living, sacrifices must be made to keep a check on your finances.

What is the value of money today compared to years ago? Yes, we can get the same items as we did many years ago, but at what cost? The difference in cost is called inflation. So, what is inflation and how can we deal with it?

Inflation is the increase in the price of goods and services over time, that reduces the purchasing power of your money. There are many factors that contribute to this, for example, the current war in the Middle East, and the imposition of tariffs on goods. When there is a certain demand for goods and services and the supply is short, this will create inflated prices.

Some of the key impacts of inflation is the decrease in the value of your money. It just doesn’t stretch as far, making it more expensive to maintain the standard of living you want.

Reduced value of your savings: While savings is good and you must continue to save, investing is better. When you save some money every month, that just sits there in the bank. You’re not earning anything on it, the bank does, as they invest your money to make money, hence the value of your savings reduces as there is no interest being applied to it.

Rising interest rates: Central Banks often raise interest rates to combat inflation, which increases the cost of borrowing for mortgages, vehicle loans and credit cards. This interest rate is not what you earn, but what you pay.

Your household budget: High inflation disproportionately affects low-income households, which often see their salaries fail to keep pace with the rising cost of living. This has a ripple effect on your health, as it leads to higher anxiety regarding your household finances and food security.

Fixed income impact: Many persons live on a fixed income, not just the working class, but retirees. This will cause a level of suffering when the purchasing power shrinks without an increase in income. With the expected removal of tax on certain pensions, this should assist or buffer some level of inflation, as it is expected that additional income will be available.

Debt management: Managing your debt is key to fighting inflation. If you can reduce or pay off those high interest debts faster, you will have saved money in the long run. While mortgages are considered a high-interest debt, in most cases the interest is small, but over a longer period, this particular asset will increase in value and increase your equity.

Lifestyle changes: Adjustments to your lifestyle are something that you will need to make. These cutbacks are not permanent, but necessary to balance your income and expenses. Some of these can be a planned vacation for a particular year, entertainment, or unnecessary spending. It may be a good idea to limit the amount of cash you carry when going to the malls and even leaving your bank cards at home, so the urge will not be there to spend.

Some other areas that affect the buying power of money are: energy price shocks; supply chain disruption; government spending; wage-price spiral.

So, how should inflation be dealt with? It will be very challenging to totally deal with inflation or even try to beat it. What you need to look at is how you invest and what you invest in.

Some areas that you can look at are property and a mix of stocks and bonds. While property (real estate) will appreciate over time, this investment can generate some income based on your goals. Property location and maintenance is key to preserving this investment.

Stocks and bonds are another avenue to look at. While the wars did cause some markets to suffer some shock and decreases, these investments will rebound over short to medium term… time and patience is important.

Fixed deposits are another way to counter inflation, but remember the deposit is fixed, so if markets improve, you will not enjoy any increase interest on the investment, but you do carry a safety net in the event the opposite happens. Not all investments are insured with the Deposit Insurance Corporation (DIC).

The bottom line is to control your spending, looking for additional income source, do some investments, and enjoy life one day at a time.

Call me for more information on planning your financial future. Send your questions to [email protected] or call 620-1185.