Inflation might have us all in a hold right now, but that doesn’t mean there aren’t ways to soften its grip. The little actions or changes we make in our daily lives can make all the difference in coping with inflation.
Unless you’ve been living under a rock, inflation has been ravaging our economy with core inflation hitting 3.6% in May — an all-time high in 13 years. While nothing much can be done to stop inflation’s current course, there’s plenty that can be done on a personal front.
Apart from keeping your overall finances in check, savings alone aren’t going to tide you through these choppy waters. In fact, depreciation will erode your savings’ value and cause you significant wealth loss.
Curious to know how to safeguard your financial wellbeing through these turbulent times of uncertainty (and potentially a recession)? In this article, we’ll delve deeper into certain lifestyle decisions — whether big or small — to undertake and turn the financial tides in your favour.
- Invest in non-fungible items
- Inflation-proof your savings
- Re-evaluate your portfolio
- Re-budget your expense categories
- Cut costs in everyday expenses
- Cut costs in unexpected areas
- Refinance home loans
- Pick a side hustle
Actions that can help hedge against inflation in 2022
1. Invest in non-fungible items (and no, we’re not exactly talking about NFTs)
Non-fungible items essentially refer to irreplaceable assets like real estate and collector’s edition items (Think: baseball cards, Pokémon cards, Funko Pop figurines, BearBrick figurines, etc). These items tend to become more valuable during inflation due to their inimitable nature.
Real estate-wise, property investments have always been a popular form of secondary cash flow. In general, real estate tends to surpass other asset classes if leveraged correctly. Renting your HDB or condo out is a good start. Finessing the fine line between lazy equity property and a profitable property differentiates the real estate investor from a regular property owner.
Conversely, the non-tangible token counterparts, NFTs, tell a different story. Horror stories of crypto scams, billions lost and exploiting off-demand speculation are far too common. For instance, prolific celebrities like Kim Kardashian and Floyd Mayweather came under fire earlier this year for “artificially inflating the price of EthereumMax” through false advertising.
To put it simply, inflation calls for prioritising more stable investment assets.
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2. Inflation-proof your savings
Having a high-yield savings account and an emergency fund is great and all, but remember: inflation erodes purchasing power. As a result, idle cash savings will not be spared — especially when inflation rises above 2%.
For perspective, your S$1,000 in savings account stored in 2022 will be worth less than S$700 in 20 years. It stands to reason why many choose to keep funds in a savings account for liquidity purposes only.
So other than higher interest savings accounts, parking your money in Singapore Savings Bonds, endowment plans or even investing are your best alternatives right now.
For beginners, investing through a Regular Savings Plan (RSP) or using a robo-advisor are viable options that won’t require stock-picking. By using the dollar-cost averaging (DCA) approach on a basket of securities like exchange-traded funds (ETFs) or unit trusts (UTs) or blue-chip stocks.
3. Re-evaluate your investment portfolio
Or if you’re already investing, reviewing your investment allocation should be a key housekeeping matter at the top of your list. Just like performing a mid-year or year-end financial review, reassessing the effectiveness of your current portfolio management is crucial to its performance.
For instance, investing with a concentrated portfolio might be a way to build a fortune but as they say, “high risk, high reward”. Unless your risk appetite can match the growth, it’s generally discouraged to follow this approach.
Instead, diversifying your portfolio over several types of assets is a better way to withstand a volatile stock market period. The more diversified the mix of investments, the more variable your potential profit margin. In turn, this can help you keep up with rising costs.
This is why a diversified portfolio allows you to maintain your wealth in the event of inflation.
💡 Pro-tip: Seeking a financial advisor may prove useful if you don’t know where to begin.
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4. Re-budgeting your expenses categories
Unless you’re completely carefree (or unhinged), chances are, you keep track of your budget to a certain extent. However, during inflation, commodity prices shoot up and shopping for basic necessities become significantly costlier.
As a result, you might need to rearrange your budget by apportioning your income flows better. Perhaps more money can be funnelled to your weekly groceries and less money towards eating out or catching a movie (just wait for it to be streamed on Netflix instead!).
Of course, re-budgeting tends to affect variable expenses that qualify as luxury spending more, as opposed to fixed expenses like rent, mortgage, utilities, loan repayments, etc.
One good way to maximise savings on non-negotiable costs is to tag them on cashback cards.
The Maybank Family & Friends card is a popular all-in-one cashback card, offering 8% cashback on five preferred categories out of 10. These include:
- Groceries (online and in-store)
- Dining & food delivery
- Transport and fuel spend
- Data communication & online TV streaming
- Retail & pets
- Online fashion
- Sports & sports apparels
- Beauty & wellness
It’d be remiss to not capitalise on its sweet savings.
Maybank Credit Card Welcome Gift: Receive a pair of American Tourister Linex 66/24 Luggage TSA (worth S$336) or an Apple AirPods 3rd Gen with Lightning Charging Case (worth S$261.40) or S$200 cash credit when you apply for a new Maybank credit card and CreditAble account, and make a min. spend of S$600 per month for 2 consecutive months from card approval date. T&Cs apply.
5. Identifying everyday expenses to cut costs
So what sort of areas in everyday expenses can you actually save on? For starters, try buying more house brand products at your local supermarket rather than international brands. As we’re all aware, tariffs are often imposed on imported goods, translating into higher costs passed on to consumers.
Following the same train of thought, shopping in supermarkets after 7pm is great to take advantage of discounts and slashed prices. Sushis are typically sold at half price and more famously, pre-made bento sets at Don Don Donki are snagged up in an instant. This applies to bakeries and deli counters too where everyone’s trying to clear stock by the end of the day.
Also if you can help it, buy secondhand or resale items from Carousell or Telegram channels at a fraction of the price.
Basically the moral of the story is, don’t buy anything for full price where possible.
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6. Identifying unexpected areas to cut costs
Again, tying up loose ends that are unnecessarily compromising your finances requires some personal reflection. Some possible culprits could include your phone plan or streaming subscriptions.
For instance, more Singaporeans are opting for SIM-only plans over fixed contracts given the cheaper rates, customisation, and greater flexibility. The typical tenure of a fixed contract lasts for 24 months whereas a SIM-only plan could be anywhere between 12 months to contract-free.
Moreover, there’s a wide variety of SIM-only plans (light, moderate, and heavy data). So unless you’re particular about other plan features like talktime, SMS or even snagging a new mobile phone at discounted rates, SIM-only plans seem to be the more popular option for mobile users.
The same logic can be applied to streaming services. Platforms like Spotify and Netflix offer family bundle packages to distribute the cost within a group.
A single Spotify Premium subscription costs S$9.99 per month while a family Spotify Premium subscription costs S$16.98 per month shared among six users. This means that the latter’s monthly cost is reduced to a measly S$2.83 per month compared to the single plan.
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7. Now might be the time to refinance home loans
Following the US Fed rate hikes in tandem with inflation, Singapore’s housing market isn’t looking too good for homeowners. This translates into our local banks raising interest rates, thereby increasing mortgage repayment values.
The Singapore overnight rate average (SORA) benchmark used to calculate floating home loans, has doubled to 0.65% in June. Likewise, the other home loan benchmark, Singapore interbank offered rate (SIBOR), has jumped to 1.56%.
Even fixed-rate home loans have seen substantial leaps, with lenders revising their offerings up to three times this year. For example, DBS recently hiked its fixed packages’ rates to 2.75% p.a. compared to its previous revision. At the same time, this follows the similar pattern of OCBC’s and UOB’s two-year fixed-rate home loan where it increased to 2.65% p.a. And 2.98% p.a. respectively.
In general, three-year fixed-rate home loan packages tend to charge higher interest than one or two-year plans given their longer tenure.
Although interest rates don’t look exactly favourable right now, experts actually purport that now might be good to refinance home loans. Why? Because given the trajectory of Fed rate hikes, it’s expected to rise further.
In light of that, it will “benefit customers who are looking to lock in the fixed interest rate for a longer period” before banks raise interest rates more, commented Nelson Neo, head of home financing solutions at DBS Consumer Banking Group.
During this time, it’s not uncommon to see many homeowners opt for two-in-one “blended” home loans where half of the mortgage is structured in fixed rates while the other half is structured under a floating package model offering special rates. These plans tend to fare better in times of interest rate uncertainty.
So whether you agree and view this as an opportune time to refinance or would rather sit this one out, both have their merits and disadvantages.
8. Picking up a side hustle
If you’ve been ‘waiting for your sign’ to pick up a side hustle, this is probably it. Inflation and recession often go hand in hand, businesses are cutting costs and the labour market becomes tight. Your full-time employment may not be as protected as it used to be.
As they say, “Don’t put all your eggs into one basket”. You can no longer fully rely on it as your singular source of income. Consider diversifying your income streams by either establishing passive income or looking into freelancing/part-time jobs.
There are loads of options available from tutoring, testing websites and apps, to even becoming your own boss in your own e-commerce business. The world is your oyster when contemplating a side hustle.
For more inspiration, read our 17 profitable side hustle ideas for Singaporeans to get the ball rolling.
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Every little action counts
When it comes to personal finance, every decision – no matter how big or small – matters. They might seem insignificant or inconsequential at that moment, but their effects will add up and compound over time.
So don’t underestimate the power of healthy financial habits, and neither should you feel pressured to make massive lifestyle changes just to combat inflation. Start small like investing your first dollar today and you’ll thank yourself later.
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