Inflation. Who hasn't read about it lately? 8, 10 and 12 per cent, the percentages are flying around. But what exactly is inflation? And what can you do to limit its effects as much as possible?
Inflation is the “devaluation of money, which leads to price increases”. This means that there is an increase in the prices of goods or services (i.e: you can buy less today for 1 euro than you could yesterday).
Inflation causes products to become more expensive, and your income may not increase as quickly, or at all. If this happens, you can buy fewer products, and your purchasing power decreases. Purchasing power indicates how much an average household can buy.
There can be several causes for inflation. Below we will name the most important ones.
A producer may have to charge a higher price for a product because it quite simply costs more money to make the said product. One reason for this may be imported cost inflation. This means that if products have to be imported and these have become more expensive, the producer has to calculate the difference in the price of the products. If this product market comes from another country, there may also be a currency price difference.
The price of products is generally determined by supply and demand. If there is more demand for products, this often leads to a price increase if there is also enough supply. This can also happen during boom times when consumers like to spend money and also have the money to do so.
A combination of the above inflation types is also possible, called structural inflation. One of the aforementioned types arises in ever-changing sectors of the economy.
Below we will discuss some tips on how to deal with inflation.
1. Take a critical look at your expenses
It is always useful to have a list of your expenses and to assess them critically. Are there subscriptions that you do not or hardly use? In the long run, reducing even the smallest regular costs will lead to less spending per month.
Awareness of your spending is important, but it is not a structural solution to inflation. It ensures that you keep more in your wallet at the bottom.
2. Put your money aside
By this, we do not mean that you should already leave money in your savings account because inflation makes your savings worth less. It is important to have a financial buffer; suppose the washing machine breaks down. If you are more wealthy and you can miss some money every month, you can put your money aside smartly. Nowadays, you can create deposit accounts at various banks, where you can put your money away for a longer period of time at a fixed interest rate.
3. Invest your money
Investing is an attractive alternative to saving if you can spare your money for longer. Of course, you only invest with the money you can spare for a long time because often you can't get the money out of the project earlier than has been determined.
If you choose to invest your money partially, doing good research beforehand is important to determining your ultimate investment goal. Do you want to put money away for a longer period at a lower interest rate, or do you want to benefit from the investment quickly? It is important to write down what risks you want to run. You can think of high risks with potentially higher returns, such as cryptocurrency, or more stability with lower risks, such as real estate.
Investing in physical real estate is not for everyone. Besides the fact that you have to invest a lot of equity in this, you also have to deal with tenants and everything that comes with this. There are several REITs (Real Estate Investment Trusts), also known as real estate investment funds, where you can invest in real estate as a private individual. Nowadays, there are also many crowdfunding platforms where you can invest in real estate for a small amount, like € 100. Read more about how investing in real estate via crowdfunding works.
Max Crowdfund is one of those platforms where you can invest from €100 in various real estate projects in the Netherlands, Germany, the UK and Belgium. The term varies from 9 to 18 months. This way, you can choose how long you want to invest your money. Create your account now and become a real estate investor too!
