Let Your Money Work to Fight Inflation, Says This Expert

The Philippine inflation rate for August was recently released, and, to the alarm of many Filipinos, it was pegged at 6.4%, the highest in nine years and way above the government's own forecast. To make matters worse, the Philippine peso slumped to its weakest dollar exchange rate in 13 years and no signs point to any relief in the near future. So what do you do when your money isn’t worth what it used to?

I pitched that question absentmindedly to our new company associate who gave me a quick response without the least bit of hesitation, as if that had already been his contingency plan for quite some time: “I’m going to move back in with my parents.”

For a generation that has progressively shown their preference to rent instead of buying property, his strategy seems to make sense. As the cultural trend of spending for experiences rather than material things has spread into a worldwide phenomenon, young adults assume that they’re saving more money by buying cheap plane tickets and Instagram-worthy meals instead of dropping monthly payments on property or a new car. And can we blame them for choosing to enjoy the fruits of their labor right now instead of sacrificing short-term happiness for the day we turn 60?

This makes a bit of sense, except the reality that someone needs to pay the monthly utility bills, put food on the dinner table, and place a roof over our heads. And that person is supposed to be you.

Someone needs to pay the monthly utility bills, put food on the dinner table, and place a roof over our heads. And that person is still supposed to be you.

One of the greatest misconceptions is that you can only either live in the moment or prepare for the future, when in fact, it is more than possible to do both. In this current environment, developing the right financial habits is essential—and among the most important of these is the simple and historically reliable 50-20-30 rule of money management. We have to go back to the basics.

Consider your monthly income, no matter how small or sizeable it may be, and divide it into these three categories: 50% for daily expenses, 20% for investments and 30% for instant gratification.

Balance your allocation groceries, transportation costs, electricity, and such necessities into no more than half of the total monthly income of your household.

If your daily consumption isn’t fitting into that amount then start stripping down what you can from your supermarket list and only then, as a last resort, are you allowed to dip your fingers into your instant gratification fund to pay off your bills.

The 20% for investments is untouchable.

The 20% for investments is non-negotiable especially when you’re building a buffer against inflation. You have to remember that the ones hardest hit by rising inflation (apart from the unemployed of course) are working-class individuals who have not received any increase in their salaries within the same period.

Even basic savings does nothing to combat inflation. Let's assume that you had stashed away 20% of your cash every month in a box starting mid-2017, and saved up to P50,000 by mid-2018. Your money would have still devalued within that time, and that P50,000 would have been able to buy you more goods last year than it would today. So the only solution is to give your cash the opportunity to grow in an investment that can deliver you returns that are higher than the current rate of inflation.

A standard savings account only offers 0.25% interest per annum, which is barely a drop in the bucket, so we need to turn to better-performing investments such as stocks, bonds, mutual funds and real estate.

The ones hardest hit by rising inflation (apart from the unemployed of course) are working-class individuals who have not received any increase in their salaries within the same period

For example, the Philippine stock market index ended 2017, with a performance of 25.11%, with certain companies increasing in values way above that mark. The top mutual fund last year would have provided you a return on your investment (ROI) at a rate of approximately 24.71% and there are current bonds being offered with a chance to earn 6-6.75% per year. Investing in a solid piece of property may take a longer amount of time to realize your ROI but land ownership can potentially lead to various money-generating opportunities in the long haul. Ultimately, educating yourself on your options is the first step to safeguarding yourself from both inflation and scams so start planting these seeds for growth and I guarantee that you will thank your future self.

That last 30% is a bonus for actually maintaining enough discipline to commit to a budget, so spend without guilt.

Compounding that will eventually allow you to buy that watch or fly out to some awe-inspiring location with the summit that you have always dreamed of climbing.

The catch: You have to start now. There is no putting off or waiting until a major economic crisis hits, because then it would have been too late. As Louis Pasteur once said, “Fortune favors the prepared mind.” So prioritize planning for your finances today—if not for yourself, then for the future of your children, because at these statistical rates, they’re definitely not moving out anytime soon.