The prices of goods and services keep going up each day, but surprisingly the income level remain the same. I know that you must be asking yourself when all this will end, but the secret to all this is in planning, while the inflation is busy eroding, you be should think of ways of improving your financial situation by always making sure that you are always one step ahead. The following article by Ricard Reeve explains the effects of inflation on personal income and how to got about surviving inflationary pressure.
Inflation is worsening. Many of us are struggling with debt management as it is, with mortgages, finance deals, utility bills, loans, credited cards and overdraft to contend with. The news that Britain is suffering from negative interest rates for the first time since 1981 makes an unpleasant situation even worse. Put simply, negative interest rates mean that prices of goods are increasing faster than interest gained from saving. This essentially makes money stored in savings accounts worth less over any stated period.
This is not to be confused with hyperinflation, which is the rise of prices as a currency devalues uncontrollably. Although as a nation we are in a financial crisis, we are still some way from a depression. Currently inflation stands at 5.2% per year, and while many of us can instantly recognise a sharp rise in the price of basic goods the rate is nowhere near the 50% a month that is a characteristic of hyperinflation.
This is not to say that inflation will not reach that level. The recent turbulence in global financial markets has led to unprecedented moves by many governments to reinstall confidence in financial institutions, effectively plugging a perceived capital gap. This is what makes the situation all the more alarming for the average family. If those at the top of the financial ladder are employing such emergency measures, what does it mean for those lower down the scale when it comes to considering their own debt management?
The good news is that it is not quite time to despair. There are options available to everybody when considering how to beat inflation.
For those with savings, it is imperative that you pay as little tax on your interest as possible. The best way of doing this is through an Individual Savings Account (ISA), offered by banks, building societies, financial advisors and some supermarkets and retailers. Nat West is currently offering the top rate of interest for an ISA at 6.71%, which is still much higher than the 5.2% rate of inflation. There are also ISA’s available at 6.25%, most notably through Barclays, the Post Office and HSBC, although the latter is for online subscription only. If plan to open an ISA it is important to use a firm authorised by the Financial Services Authority (FSA). The use of an authorised firm grants access to available complaints procedures, the Financial Ombudsman Scheme and the Financial Services Compensation Scheme.
For those without savings who are struggling with debt the situation may seem more immediate, but effective debt management is possible without huge savings. As the price of goods rises there is increasing need to save money and there are ways and means to do this in our everyday lives. When purchasing goods, ensure that price is at the forefront of your purchasing decisions. This includes shopping around. Although the major supermarkets have their own low-cost brands, there may still be lower cost goods available at the budget supermarkets.
When relating this to debt management it is crucial to save as much money as possible in order to continue to make payments to creditors. While inflation increases potential outgoing, it is up to us to reduce actual outgoing. Whether this be through maximizing savings or minimising expenditure the time to act is now to give ourselves the best chance of beating the inflation that seems ready to engulf us.