Inflation 101: Definition and Preparation

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Inflation (definition and preparation) – Did you know?

A quick definition and preparation for inflation – Inflation is a silent culprit. In the early 1960s, it only costs PHP 25.00 to PHP 30.00 to buy a movie ticket? As of today (2014), a single movie ticket will cost you approximately PHP200.00 to PHP 500.00.

Ever heard your grandparents recall how simple life was during their time? Back in the days, people could survive with basic necessities by bringing just PHP10.00 in a day.

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Amidst all the expensive things today, one thing is for sure: prices would definitely continue to rise. All because of one culprit. Inflation.

WHAT IS INFLATION (A definition)?

Inflation is the increase of prices of goods and services within an economy over a certain period over time.

A chicken meal for lunch or dinner is very popular amongst Filipinos nowadays. As of today (2014), a whole chicken from Chooks-to-go costs PHP200.00 Did you know that 12 years from now, PHP200.00 would only get you half a chicken from Chooks-to-go? Fast forward time to 24 years from now, PHP200.00 could only buy you a quarter of Chooks-to-go chicken. Sadly, PHP200.00 would only get you chicken feet from Chooks-to-go 36 years from now.

IS YOUR MONEY SLEEPING IN THE BANK?

Did you know the average inflation rate in the Philippines is 5-8%? How much interest rate are you earning in your bank savings account today? Less than 1% for savings account, minus withholding taxes, right? Sometimes, we fool ourselves into thinking that we actually earn money in savings account. We don’t. While we are earning less than 1% interest (minus withholding taxes), prices of goods rise up to 5-8% per annum. Is your money sleeping in the bank? If so, it is slowly losing its purchasing power over time.

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Financial Preparation for Inflation

How can an average Filipino cope with inflation given his limited income? Preparing yourself financially from the annual price hike can be done easily as long as you have the TIME, INCOME and INTEREST.

Tips:

  1. Stop overspending and get out of debt – Are you overspending on impulse with your credit card and shopping sprees? Obtaining another loan from the bank? Being in debt greatly diminishes a financially secured future for you. Once you are in debt and inflation suddenly spikes up, prices would sky-rocket everywhere and you’ll find yourself in even deeper trouble financially.
  2. Save first before spending – It’s time to start saving and investing. Start by setting aside 10% of your income for savings and investment. As a parent with many financial obligations, this may seem hard at first. But as you start getting into this habit, it all gets easier over time. As a yuppie who have no children dependent on your income, don’t spend all your salary for gadgets and clothes. These things depreciate over time. Learn to set aside at least 40% of your income.
  3. Start planning for the future – Know the time horizon of your financial goals. When do I want to retire? When will I set up my own business? When will I expand my current business? When will I start a family? It is never too early to plan. Because the earlier you start to invest, the greater your returns are.
  4. Find financial instruments that generate returns more than inflation – Earning less than 1% gross in the bank? Inflation averages around 5% per annum. Don’t let your money sleep in the bank. Start investing now!
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Money Monkeys

Money Monkeys seeks to educate on topics related to finance, entrepreneurship, and the rising fintech innovations. We provide easy to digest articles with the aim of raising financial literacy, cultivating a growth mindset, and harnessing the spirits of fellow entrepreneurs.

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