Rishi Piparaiya lists three simple steps to manage the impact of rising prices and protect your financial future
When it comes to taxation in India, the scope of coverage is relatively limited. According to statistics, a meagre percentage of Indians pay formal taxes such as GST or Income Tax.
However, there is one tax, not levied by any government but that still affects every single Indian regardless of income, age, or demographic -- Inflation!
Inflation is the general increase in prices of goods and services over time. Take something that costs Rs 100 today; it could cost Rs 105 in the next year and Rs 200 in a decade. The product has stayed the same; it has just become more expensive.
That is inflation, and it impacts every citizen, not just in India, but globally.
Inflation is one of the most important phenomena that you have to manage if you are to secure your financial future. You have little influence on the movement of prices; they will go up and down depending on various factors beyond your control.
So you have to focus on the levers you can manage to help you counter inflation. Practically speaking, there are three things you can do:
1. Invest your money wisely
If you leave your money lying around in your wallet or bank account, inflation will get the better of you. Your money will earn a few percentage points return, while inflation is averaging 5 per cent to 7 per cent over the past few years.
So you must invest your money wisely in investments that will give a higher return than inflation.
- Equities, real estate, some forms of debt -- all these assets have historically tended to outperform inflation. So invest wisely in them.
- Diversify your investments in various asset classes; this reduces your risk and optimises your returns.
- Lastly, be regular and consistent in your investment routine; systematically investing will help you create long-term wealth and counter inflation better than sporadic bursts.
2. Increase your income
If prices are rising, one way to keep up with that is to increase your income. If you are salaried, hopefully, your increments will be higher than inflation. But in these challenging economic environments, that is unlikely.
So explore ways to supplement your income through other sources.
- You can use your skills and interests to pursue freelance opportunities and enhance your income.
- You can build passive income streams through rentals, dividends, interest, etc.
- Or you can invest in yourself and enhance your skills and expertise, positively impacting your employability and pay.
3. Reduce your expenses
While this is the most painful option, controlling costs is another way to manage rising prices. You can do many things to spend smartly, and we can only cover some things here. But it would be best if you were very mindful of your expenses.
- Have a budget and try and track it, at least occasionally, if not every month.
- Shop during sales, off-seasons, and other lean periods, when prices are heavily discounted.
- Don't make impulsive purchases, and consider whether you need something. Is it an absolute need or an indulgence want?
- Substitute brands if you are getting similar quality goods or services for a lower price.
- Stay away from loans or any form of debt -- the EMIs and fees will completely disrupt your financial plan.
There are two things certain in life -- death and taxes. I would probably add inflation to the list. Prices will continue to increase in the future; that is a given.
But while the future cost of living is not in your hands, with some planning and discipline, your future quality of life certainly is. So take charge of it!
Rishi Piparaiya is the author of Three Pigs To Financial Freedom, Cities Of Adventure, Job Be Damned and Aisle Be Damned.