Surviving Inflation: A Guide to Budgeting

Inflation is a natural and ongoing economic phenomenon that affects the purchasing power of money over time. It occurs when the general price level of goods and services in an economy rises, reducing the value of money. Inflation can have a significant impact on your budget, making it more difficult to afford the things you need and want. To help you survive inflation, this guide provides practical tips and advice on how to budget effectively.

Understand Inflation and its Impact on Your Budget

Before you start making changes to your budget, it's important to understand the underlying causes of inflation and how it can affect your finances. Inflation is caused by a number of factors, including an increase in the money supply, higher demand for goods and services, and a decrease in the supply of goods and services. When inflation occurs, the prices of goods and services go up, reducing the purchasing power of money. Check this out >> What is Inflation: A Begginer's Guide

One of the biggest impacts of inflation on your budget is that it makes it more expensive to buy the things you need and want. For example, if the inflation rate is 2%, your money will only buy 98% of the goods and services it could have bought the previous year. This means that you have to spend more money to maintain your standard of living.

Create a Budget and Stick to it

One of the most effective ways to survive inflation is to create a budget and stick to it. A budget is a financial plan that outlines your expected income and expenses for a specified period of time. By creating a budget, you can see exactly how much money you have available to spend each month, and how much you need to save.

When creating your budget, be sure to include all of your monthly expenses, including housing, utilities, food, transportation, and entertainment. Be realistic about your spending habits and try to stick to your budget as much as possible. If you find that you are consistently overspending in one area, consider cutting back in other areas or finding ways to increase your income.

Save Money and Build an Emergency Fund

Saving money is another key strategy for surviving inflation. By putting money into savings each month, you can build an emergency fund that will help you cover unexpected expenses, such as medical bills or car repairs. Having an emergency fund will also give you a cushion if inflation causes your expenses to rise.

To start saving, consider setting up an automatic savings plan. Many banks and credit unions offer automatic savings plans that transfer a specified amount of money from your checking account into your savings account each month. This will help you save money without even thinking about it.

Invest in Inflation-Protected Securities

In addition to saving money, consider investing in inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS) or I Bonds. These types of securities are designed to help protect your money from the effects of inflation by adjusting the interest rate to reflect changes in the Consumer Price Index. By investing in inflation-protected securities, you can help ensure that your money will have the same purchasing power in the future as it does today.

What is Inflation? A Beginner's Guide

Inflation is a key economic concept that can have a significant impact on the value of your money and the purchasing power of your investments. In its simplest form, inflation is the rate at which the general level of prices for goods and services is rising, and the purchasing power of currency is falling. This means that over time, the same amount of money will buy fewer and fewer goods and services.

For many people, understanding inflation can be a challenge. It can be influenced by a variety of factors, including changes in supply and demand, interest rates, and government policies. In order to better understand inflation and how it affects your finances, it is important to have a solid understanding of the basics.

Fun Fact: In 1919, a loaf of bread cost approximately $0.10, but by 1920, the same loaf of bread cost $0.20 due to inflation caused by World War I.

Statistics: According to the Bureau of Labor Statistics, the average inflation rate in the United States over the past 100 years has been approximately 2% per year. This means that if you had $100 in 1920, it would be equivalent to $1,281 in 2020 dollars.

 "Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair." - Sam Ewing

"Inflation is the one form of taxation that can be imposed without legislation." - Milton Friedman, American economist

There are a variety of strategies that individuals can use to help protect themselves from the effects of inflation. For example, investing in assets that have the potential to increase in value, such as stocks or real estate, can help to preserve your purchasing power over time. Additionally, reducing your expenses and living within your means can help you to save more money, which can then be invested to help grow your wealth over time.

It is important to remember that inflation is a natural part of the economic cycle and that it can impact the value of your money and investments over time. By developing a strategy to beat inflation, you can help to protect your finances and ensure that you are able to maintain your standard of living over the long term.

Read these articles:

1. Beat inflation with these smart investing strategies

Beat Inflation with Smart Investment Strategies

Inflation is a reality that affects us all, and it can have a significant impact on your finances, especially if you don’t take the necessary steps to protect yourself. Inflation refers to the rise in prices of goods and services over time, and it erodes the purchasing power of your money. The good news is that there are several investment strategies that you can use to beat inflation and protect your wealth.

Before we delve into the strategies, let’s take a look at some statistics and facts about inflation. According to the Bureau of Labor Statistics, the average annual inflation rate in the United States over the past decade has been about 1.9%. While this may seem like a small number, it adds up over time, especially when compounded. For example, if you had $100,000 in the bank and inflation was 1.9% for 10 years, your money would only be worth approximately $90,850 in today's dollars.

Another important fact about inflation is that it affects different goods and services differently. For example, the price of healthcare and education has increased at a much faster rate than the overall inflation rate. This highlights the importance of diversifying your investments and not relying solely on traditional savings accounts.

Now that we’ve established the importance of beating inflation, let’s take a look at some smart investment strategies.

1. Invest in stocks: Stocks have historically provided higher returns than savings accounts, and they are a great way to beat inflation. The S&P 500, an index of 500 large companies, has delivered an average annual return of 10% over the past 90 years. This is significantly higher than the average inflation rate and can help you protect your wealth.

2. Diversify your portfolio: Diversifying your investments is key to protecting your wealth from inflation. You can achieve diversification by investing in a mix of stocks, bonds, real estate, and other assets. This will help you spread out your risk and potentially increase your returns.

3. Invest in real estate: Real estate has historically been a good hedge against inflation. When inflation rises, so do property values and rental income, which can provide a strong return on investment.

4. Consider inflation-linked bonds: Inflation-linked bonds, also known as TIPS, are bonds that are tied to the inflation rate. They provide a guaranteed return that is adjusted for inflation, which can help protect your purchasing power.

5. Consider commodities: Commodities, such as gold, silver, and oil, are often seen as a hedge against inflation. When inflation rises, the price of commodities usually increases as well, providing a potential return on investment.

Inflation is a reality that affects us all, and it’s important to take steps to protect your wealth. By investing in stocks, diversifying your portfolio, investing in real estate, considering inflation-linked bonds, and considering commodities, you can beat inflation and protect your purchasing power.

Remember, it’s always important to consult with a financial advisor before making any investment decisions, and to make sure you have a comprehensive financial plan in place. With the right strategy and approach, you can beat inflation and secure your financial future.

Read this:

1. What is Inflation: A Beginner's Guide

2. Surviving Inflation: Guide to Budgeting

Warren Buffet Advice - Best Hedge Against Inflation

Buy Silver in Singapore

Lately, I have been having some bizarre interest in collecting silver coins.  It just feels cool to actually own silver knowing that this used to be used as currency across history.  But as a pretty newbie to silver, I won't call my purchases as investing in silver just yet.  Nevertheless, I have been reading up quite a fair bit about silver coins to know how much a troy ounce actually weighs.  And it is interesting to find out a whole new domain of knowledge literally about investing in silver bullion coins, using it as a hedge against inflation, etc.

Well, the first thing to realise is that it is not too difficult to buy silver in Singapore.    I am not talking about investing in silver through ETFs but really owning physical silver bars and coins.  There are actually quite a few companies that sells silver bullion.  Here are the few things that I have learnt about silver coins thus far:

1.  Buy silver coins or bars that are widely recognised

• This seems to be the advice that people are giving in various forums.  Coins widely recognised include the American Silver Eagle and the Canadian Silver Maple Leaf.  There are others like the Australian Silver Kookaburra from Perth Mint and also the Austrian Silver Vienna Philharmonic.  

2.  Silver Coins Trade Above Spot Price

• One can check the spot price for silver easily on kitco or some other website.  However, silver coins often trade or are sold above the spot price of silver.  Even on Ebay, they trade above the spot price.
• Silver price has been increasing slowly.

3.  Places to Buy Silver in Singapore [Grabbed this off another forum]

• www.1silver1.com (Website is a bit slow so need to be patient)
• www.silverag.com.sg
• www.silverbullion.com.sg
• www.yashabullion.com
• www.goldprice.com.sg
• www.goldsilvercentral.com.sg
• www.royalsmithbullion.com

Many of these shops have a minimum order (e.g. 20 x 1 oz coins) or a minimum purchase of $2000.  Some of them have minimum orders of 500 oz and based on today's price of silver, will literally cost you a 20 over grand (estimated $48++ for a 1 oz silver coin). So you really have to be serious about it before making a purchase.  The first link actually allows customers to buy 1 oz silver bar as a minimum order.  But it is a Scottsdale silver bar and I am not certain that it is as widely recognised as the other silver coins.

4.  Buying off Ebay

If you prefer to buy loose pieces, you can always buy them off Ebay.  However, prices are slightly higher when you do not buy in bulk.  Many sellers also do not ship to Singapore.  

Question:

Do you invest in silver or gold?  

If  yes, where do you buy them from?

How do you store them?

Price of Coffee Goes Up

Hi Readers,

Hope you have not been missing me much. Ever since the new year started, I have been busying myself with the more important things in life like spending time with family, reading, work, and of course various leisure activities.

For one, I have managed to watch the Godfather again. Something that I had wanted to do for the longest time but just could not find the spare time to do so.

I have also been reading like crazy. All the books in my house are being read through almost simultaneously.

The year has started off well.

Except for the news of coffee prices going up again, all has been well over at my side. Coffee is a drink that I am sure most people cannot live without. For me, a 10cents increase in a cup of coffee easily translates to a sizeable amount of money.

On the blogging front, I really do hope to blog more.

Is Inflation Bad?

I have always had the concept that inflation is bad.

Recently, I dug up my old school textbook on Economics and started to read it and realised that there are actually pros and cons to inflation and that aiming for zero inflation might actually be a bad thing. Here are some of the things that I learnt:

Reducing inflation is said to require a period of high unemployment and low output. In addition, the cost of reaching zero inflation is large. When inflation is zero, the lost output translates to lost income and this does not fall proportionately across the entire population. Instead, the workers who lose their jobs are the ones who actually pull down the aggregate income. These workers are often the ones who are lower skilled and have the least expertise. At the end, the cost of a zero inflation policy is borne by the ones who can least afford it.

So do you think inflation is good or bad? The answer is actually not that simple and a huge debate is still ongoing....

Sing Dollar Rises with Record GDP Growth Forecast

With Singapore's GDP expected to grow at a record 13 to 15 percent in 2010, the Sing Dollar is also expected to rise to curb inflation. MAS has declared that it will maintain a modest and gradual appreciation stance for the currency at the next policy meeting.

I have always been quite interested in economics. Unfortunately, I have never been trained in this subject. The closest I got was to study Economics 101 in university and that was pretty much about supply and demand lines. We hardly talked about currency appreciation and inflation.

This is my version or laymen's language of what is going on:

1. Singapore's output in terms of products and services have been pretty high over the past 2 quarters. As such, the expected GDP figures are going to be between 13 to 15 percent. GDP stands for Gross Domestic Product and is basically a measure of the country's economic output. For the long term, a healthy GDP growth is around 3 to 5 percent.

2. When GDP rises, inflation is also expected to increase. This is because firms require more workers and start bidding against one another to attract workers so as to produce a higher output. This leads to an increase in the prices of goods and services and thus leads to inflation. When GDP grows rapidly, inflation is also expected to rise rapidly. Most economists try to keep a low steady inflation rate of 2 to 6 percent. That basically means that there will ALWAYS be inflation in Singapore as it is judged that low rate of inflation is good for the economy. So do take note that inflation is not some airy fairy thing that only takes place once in a blue moon. Most countries try to keep a positive inflation as they view that deflation is bad for the economy. In that sense, we can expect inflation to be always with us.

3. By appreciating the Singapore currency, inflation will be kept in check to the low rate. MAS is not trying to abolish inflation. Rather, it is trying to achieve the targeted inflation rate of 2 to 6 percent which is deemed healthy.

I am not an economist and I am also not from MAS. But I guess this is the linkage between GDP, inflation and currency appreciation. At least, this is the way I understand it to work =)

$2.20 For A Cup of Ribena

I was at a foodcourt just now and ordered a cup of ribena. It is shocking to find out that it actually cost $2.20 just for a small cup of ribena.

Imagine the profit margins that the drink stall is earning!

$2.20 could have bought me a thosai and a cup of coffee for my morning breakfast and I would still have change to spare.

The cost of living in Singapore is definitely going up.

I am pretty certain that many years ago, $2 could have bought one a plate of chicken rice. Now, it won't even get you a cup of Ribena.

I shall keep this entry in here as I would like to look back at this posting maybe in 20 years time and see how "cheap" ribena was then. I could then lament to my children and tell them that things used to cost so cheap then.

One can only imagine what the price of a cup of Ribena will cost in twenty years time.

Anyone dares to make a prediction and we will see who gets the closest price in twenty years time?

What My Dad Taught Me About Inflation

Today, I was buying lunch at the hawker centre and paid $3.00 for my meal.

After handing in my money to the stall owner, I had a flashback where I recalled my dad's frequent lament about how a bowl of wanton mee used to cost only $0.20 to $0.30.

I also remembered how I used to respond. "Aiyah! Last time things very cheap la..I know.."

I remember seeing the pain in his eyes as he always made that lament. And now I guess I know the reason why.

He was not recalling the days when things used to be cheap or cheaper. Rather, he was feeling the pain at how the cost of living has gone UP and UP over the years.

It was not too many years ago that my dad could get a meal at $0.30 and a drink perhaps at a few cents. But those days are over and now the price of things have gone up. Economists call this inflation. My dad calls it : " Last time this only used to cost XXX cents, now it is a few dollars."

Things were not cheaper back then. Things are just more expensive now.

I can only imagine myself lamenting to my son in the future 20 years down the road....

Imagine the year 2030....

I am walking down the food court with my son who wants to order a plate of chicken rice. Then, I lament and say:

"Last time chicken rice used to cost me $3, now one plate costs me $30!!!"

I can imagine my son staring blankly back at me and giving me the same reply that I gave my father...

"AIYAH, last time things are cheap.. but last time is last time LAH!"

Have you factored in inflation into your retirement plans? If you have not, be prepared for a rude shock when you retire.

Singapore Inflation for 2008 is 6.5%

So Singapore's Consumer Price Index (CPI) for 2008 climbed to its highest in 28 years. That is a whopping 6.5% !

What this means is that my money in the bank is basically being wiped out by inflation.

With a paltry < 1% bank deposit rate, the bank deposit rates are simply not sufficient to combat this high inflation.

But in reality, what are the prices that have truly gone up for my household?

I will say one word "Petrol". The prices of petrol has simply gone up so much.

Pumping a 95 octane fuel cost almost $1.40++ per litre. If I remember correctly, the highest grade of petrol used to be that price like 7 years back when I first started driving.

Other than petrol, I don't think my household has seen a significant increase in any other item.

Electricity bills did go up a bit during the end of the year but we managed to cut down on our air-con usage and stuff.

The Dollar Crisis

It seems that many books and articles have been written about the coming demise of the US dollar and the effects it would have on the global economy.

In my journey to financial freedom, I understand that there must be a certain amount set aside hedge against inflation. But what if there is a total collapse of the entire financial system worldwide? What if the US dollar becomes absolutely worthless? How would that affect me and my savings?

If the day was to come when the US dollar becomes totally worthless, I think all countries willl be affected. Everyone will face inflation or hyperinflation and those currencies which are not backed by gold will suffer the most. Of course, this situation is just hypothetical but it could happen in our lifetime.

The best thing one can do is to make sure that a certain amount of money is set aside in Gold - which for the longest time in the history of mankind, has been used as money. Only in recent times have we as nations abandon the gold standard which was replaced by Man's money (easily reprintable and reproducable money).

I am looking for opportunities to invest in Gold.

So far, the only bank in Singapore that sells gold is UOB. I will explore this further in the next posting.