The world economy is navigating through a period of rising inflation as a result of the combined effect of excess money supply from government stimulus measures and the supply chain disruptions due to covid lockdowns and the subsequent war. A period of inflation is generally followed by a painful recession. An efficient financial plan can ensure that we successfully navigate this economic phase with least amount of dent to our financial portfolio/ savings. Few pointers for your plan are:
- Have a Budget >> In a period of rising cost have a monthly budget of expenses to ensure that money is spent on essentials. Efforts must be taken to restrict unbudgeted expenses to the minimum and to the most urgent ones.?
- Repay Variable loans >> As central banks across the globe take measures to cut money supply, the cost of borrowing will go up. Repay your loans at the earliest; otherwise be ready to shell out more money on interest cost.
- Defer buying motor cars and other big capital expenses >> The supply chain disruptions has led to ballooning of input cost for car manufacturers. This along with hardening of interest rates may raise vehicle acquisition cost. Therefore caution must be applied while pondering over new vehicle purchase.
- Set aside emergency fund >> Ensure that money has been set aside towards immediate financial challenges. The money in the fund must be at least twice of your monthly essential budget.?
- Continue to Invest >> We must continue with our SIPs but must restrict to low risk and fundamentally strong sectors that tend to benefit from inflation. Some of these include gold, mining companies, commodity producers and banking and financial services company. Look for opportunities to invest in fundamentally strong companies that have been in your watchlist but hasn’t been acquired due to their high valuations. Right purchases at the correct prices can ensure future capital appreciation and financial safety.
Overall, a cautious and systematic financial approach is the armour one needs to adopt during times of economic slowdown and distress.
