The inflation rate in the Philippines accelerated to 6.4% in August, the highest in 9 years. My social media feed was flooded with negative reactions to the news, which is understandable. Inflation sucks. In addition to the rising costs of goods, a regular employee has to deal with the rising costs of parking, gas, and even rent. But it doesn’t have to be an obstacle for us to achieve financial freedom. Inflation is a macroeconomics concept since it refers to the rise in prices in an economy over a period of time. Here are 3 random thoughts on the topic from a personal level:
1. Focus on what you can control – The relatively high inflation rate is caused by many complex factors such as higher taxes, foreign exchange rates, low supply due to higher wages or raw materials, and increasing demand due to higher consumer spending. All of which are out of our control. We can, however, control our spending or minimize expenses. Or look for other ways to increase income, such as asking for a raise, applying for another job, or use any free time to earn extra income.
2. Inflation is a part of life. Investing should be too. – Almost everything 10 to 15 years ago was cheaper. One way to combat inflation is to invest in a product that yields at least 4%, such as bonds or mutual funds. The annual inflation rates from 2013 – 2017 were all less than 4%, as depicted in the table below. Putting all your cash in a savings account that yields less than 1% may be considered risky due to inflation.
3. Your priorities don’t have to change – Whether it is an expensive priority such as my kid’s tuition, or a cheap priority such as an iced coffee/milk tea EVERYDAY at work, you don’t have to suffer just because of inflation. Honestly, if the price of iced coffee or milk tea went up by 10% tomorrow, I would still probably buy it. Because it helps with my productivity at work. Just kidding, I admit I’m addicted and can’t live without those refreshments. I do, however, need to give up low priority expenses just so that I could stay within budget amidst inflation. Some examples I can think of are movie tickets, dining out in certain restaurants, or even just downgrading my phone plan. Different priorities of course for different individuals. Because personal finance is still personal.
Financial Independence requires more than just a stable rate of inflation. It usually requires consistency and discipline over a long period of time. Extremely difficult for employees like me. But not impossible.