The economic world is in constant change due to different upcoming events both in the financial world and to geopolitical moves from worldwide countries. Inflation has definitely played an important part in the economic world because it determines the purchasing power of money. When a high inflation rate occurs, prices of goods and services increase. To some extent, inflation may positively impact the economic society: “a slowly increasing price level keeps businesses profitable and prevents consumers from waiting for lower prices before making a purchase” (federal reserve), and furthermore, some sustain that inflation is the only way to prevent deflation, which, by its very definition, is a decrease in the general price level of goods and services. Moreover, it is also important to keep in mind that deflation happens only in a situation in which inflation rate falls under 0%. This system was created to prevent currencies from possibly oscillating in their value. In conclusion, inflation and deflation are used as tools to keep currencies’ value stable to better sustain prices, affecting people’s welfare. It is also important to remember that a slightly positive inflationary rate helps to reduce the public debt’s weight on a country’s economy. Let’s make an example: imagine that Italy borrowed 1 billion euros in 2021; now, in 2022, the purchasing power of that same sum of money, therefore its value, has decreased by around 3.5% due to inflation.
Just to give an example of the current inflation rate, the eurozone is suffering from a +5.0% increase in commodity prices, and around a +30% increase in energy bills. This inevitably leads to a reduction in the purchasing power of money. The latest news related to the inflation rate demonstrates that people located in the middle-low wealth class are suffering financially as they are struggling to keep up with recurring commodity bills. To bring a related example on the aforementioned topic, the latest studies show that retirees with minimum or social wage pension (468,10€ a month, in Italy) are on the poverty line, decreasing the country’s commonwealth.
Now, by having mentioned some of the effects of inflation on people’s economy, we can now proceed in analyzing and answering our research question. Clearly, we are facing difficult moments both socially and financially. Thus, there are some small “tricks” to save and protect our piggy bank from the current situation and most importantly to prevent our money to decrease in value. To start off, the first step to undertake is to invest. Keeping money in liquid form is the biggest mistake people can make, because banks tend to have high account costs which will “eat” your savings. Once you decide to invest, get in touch with an expert in the field if that’s the path you want to undertake. Be careful when making investment decisions, to not buy any high-risk stocks as it may negatively impact your net worth. It would be better to buy low-yield stocks (i.e., bonds) in order to have low risk but still benefit from a slight positive increase in the value of the invested amount.
The second theme to discuss is surely the percentage amount of your capital to be invested. There isn’t any right amount, it depends only on your liquidity needs and how much you own. I would suggest investing about 70% of your capital, in order to benefit as much as possible from investments.
Back to our main topic, another way to prevent money to be negatively impacted by inflation is to invest in another type of market: the real estate market. This can be done through a mortgage/loan as interest rates are currently below 1%. I would suggest choosing to buy a house through a bank loan as it is strongly recommended not to tap into your savings even though you have sufficient capital to pay for the full sum.
Investing in the real estate market is one of the best ways to increment private funds. This type of market is usually stable, there are very rare losses in value and, as we all know is the oldest market ever created, giving it a touch of reliability.
Protecting your own funds from inflation may imply assuming high risks with respect to your capital, even though it may also bring astonishing results to your net worth. When discussing finance and “money-making”, people must take into account that a lack of risks and entrepreneurship, will consequently lead to a decrease in the value of your money.
Inflation will reduce the power of purchase of your liquid assets, quickly sucking your money by just maintaining the same lifestyle and standard of living.