It was always going to happen, with all the money printing during the pandemic, done to prop up the economy and living standards with initiatives like the furlough scheme, we were always heading toward inflationary pressure.
Why does printing money cause inflation? Adding more physical money to the system without additional value underpinning that money, causes a devaluation of the physical money.
Add to that, the war in Ukraine is causing oil prices to rise as well as wheat, and the strict lockdowns in China, a country that produces many of the consumer goods we buy, which is pursuing a Zero COVID policy, which all has knock on effects to costs of items in the supply chain so that ultimately, as a consumer, you will pay more for goods.
Inflation is currently running at 7.8% in the UK and 8.6% in the US, meaning that the general price of goods you buy will be nearly 10% more on average at the end of the year than it was at the start of the year.
So, what steps can you take to protect your finances from this situation?
Take your money out of cash and put it into shares (equities)
One of the worst things you can do is to keep your money in a cash account. We're in a low interest environment still, and even though you might earn up to 1.5% interest on your money, because inflation is upwards of 7%, that means you're still losing purchasing power, or real value of your money to the tune of 5%.
Stock markets are also taking a bit of a hit right now due to general fear in the market, but even so, the long term average return of the S&P 500 index in the US of the top 500 companies is 10.5%, so still more than the current rate of inflation. In the long run, you're generally better off by putting your money in the stock market than you are keeping it in cash.
Reduce expenditure
Perhaps obvious, but still valid. Just stop spending on stuff you don't need. Have five streaming subscriptions? Consider that you probably won't watch all of the content of one of those in your lifetime, so think about whether you need them all. Marvel movies and series have been getting boring since Endgame anyway, and as a life long Star Wars fan, I think it's been dead since Disney.
Other things you can consider cutting are all those expensive cocktails out, or maybe just have two or three đ. During the pandemic's lockdowns, we realised that due to the cost saving of going out, we could drink champagne on the weekend and still be saving money, so consider other ways to treat yourself đ.
Put money into yourself
Invest in yourself. Continue to learn, continue to upskill, and perhaps you can go for roles that demand a higher salary due to your additional skills and expertise, or even retrain entirely and go into industries that are growing, like the arts (which admittedly surprised me when I saw this table!)