Everyone by now is well and truly aware of the effects of inflation. We are feeling it in our weekly grocery bills, energy, petrol and other costs. The other pain a lot of people are feeling is from rising interest rates. Interest rates have been hiked in order to bring inflation under control, but how well has that worked? Not so well at all so far.
If inflation remains unable to be brought under control, it will be one of the greatest underlying risks to the economy in Australia and the wealth divide will become much greater as a result.

Inflation is visible wherever you go

We are being told at the moment that inflation is slowly coming under control, but where is the evidence? When you go to the supermarket, you can see it in what seem like small price increases. If something goes from $10 to $11, it doesn’t sound like much, but it’s a 10% price increase. All these little price increases can add up to a lot more money by the time you fill a trolley and take it to the checkout.

The government and the RBA are talking the talk, but has that helped you so far? Far from it. As a matter of fact, if you’re paying off a mortgage, it’s likely that you’re the one doing the heavy lifting. As b Invested founder Nathan Birch likes to point out, the government isn’t coming to save you. You need your own strategy to protect yourself and your wealth for the future.

Cash is trash

Nathan says cash is trash. He likes cashflow, because the cash flows into his bank account and he spends it on something that will advance his position. He even has a rule that at the end of each day, he has no cash in his account. He spends it on bills, debt, or investments, because each day it hasn’t been used it will be worth less than the day before. He also knows that more will flow into his account the next day because of how many investments, businesses and income streams he has going. 

Assets appreciate

Using the cash to buy assets means you are taking something that depreciates and turning it into something that appreciates in value.
Look at the housing market over time. When was the last time you heard someone say they were happy they sold a property 10 years ago? They never do because the property is almost always worth more 10 years later, while the money they received from it is worth less than it was 10 years earlier.

Other things to consider

What will keep you earning over the next period of your life? Will you have multiple income streams helping you? Will your job still be relevant in the future? Are you in a recession-proof industry, or might you end up out of work? There are already recessionary traits in many businesses out there as people are forced to cut back spending to deal with inflation.

The worst pain of all will be felt if hyperinflation ends up occurring. It has happened many times in history in places like Germany, Hungary, Zimbabwe and now Turkey. In a hyperinflationary scenario, everyone might become billionaires, but the money won’t buy anything.

How to prepare

You can start with small things. Grow some fruit and veg in the yard, maybe get some chickens that can provide eggs. Having some level of self-sufficiency is important because it can alleviate some of the potential pain of inflation.

Then, think about not just how to save money, but how you can access more income from the inflation. If you have assets bringing in income, can you increase it and improve your cashflow streams? You can create and plan for the inflation to benefit you so that you can collect that inflated cashflow.