Tips | May 6, 2011

Five tips for beating inflation

Inflation is a general increase in prices that can eat away at the value of money over time. eZonomics has come up with five tips for beating inflation.

1. Invest wisely: It might sound obvious but knowing the rate of inflation where you live is a good first step for beating inflation. Then invest wisely to try to ensure earnings are at a higher rate than the rate of inflation.

2. Take account of tax on interest: If the rate of inflation is 5% and the rate of interest is 5% but your tax rate is 50%, only 2.5% interest is received after tax. It's a common pitfall that means you're not keeping up with inflation – let alone beating inflation.

3. Do not spend interest earned: Known as re-investing the interest, interest needs to be added to the money saved originally in order to beat inflation. This way, when the saved money is needed in the future, the nest egg will not have been eaten away by rising prices.

4. Consider index-linked investments: Certain investments are pretty much a sure way to beat inflation. Investments linked to inflation might pay, for example, 1% plus the rate of inflation. Such arrangements might be particularly attractive in high inflation environments but beware their appeal may fall if the inflation rate slows or turns negative.

5. Save more: It can painful and difficult to increase savings but in an environment with low interest rates and high inflation, it might be needed. If our money won't grow by itself, we should add to it ourselves.

eZonomics team
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