How to minimise the impact of inflation on your finances

As South Africans, we have come to understand that inflation is as much a part of life as death and taxes. Steep price hikes have taken a heavy toll, particularly on those affected by Covid-induced salary cuts or job loss.

We consider the impact of inflation on  your finances, including some lesser-known effects, and the steps you can take to mitigate your losses.

Tip: Are you struggling with cashflow? Consolidating your debt can help you to reduce your monthly expenditure.

How inflation affects your standard of living

Most people understand inflation to be a rise in the average cost of goods and services. But the effects of inflation are also felt through interest rate hikes, sporadic fuel increases, and the failure of salary increments to keep pace with the cost of living.

Farzana Botha, segment solutions manager at Sanlam, says that a failure to budget for inflation, and a lack of awareness of expenses, are what catch most people off-guard.

“Your weekly groceries can jump from R400 to R450 to R500 in the space of a few months without you noticing, and the result is a significant increase in your expenditure,” Botha says.

Inflation causes not only higher spending but also lower earnings. The DebtBusters Q4 Debt Index reflects this.

“Nominal incomes in 2021 were slightly lower than 2016 levels, however, when cumulative inflation growth of 24% is factored in for the same period, real incomes shrank by 25% over this period,” notes Benay Sager, Head of DebtBusters.

The net effect is that consumers are much worse off than they were in 2016. But what can be done to address this?

How to hedge against the risks

We can't stop inflation, but we can regulate our spending. The greatest way to protect yourself is to plan your budget with inflation in mind.

“It’s important to account for what goes out and comes in, the interest rates you’re paying, and how you can manage them,” says Botha.

“Service your interest-bearing loans, and reduce the expenses on your debt. This will free up disposable income.”

In terms of your savings, the same mindfulness applies.

“Choosing an investment that provides inflation-beating interest rates, and holding assets that appreciate over time, such as property, will help you hedge against inflationary risks,” notes Botha.

By reducing your debt and investing well, you can free up extra capital to provide a buffer against any unexpected inflationary expenses.

"There is a wealth of specialist information, tools and resources accessible online to aid with this,” Botha explains. This can provide a valuable starting point for consumers.

Reduce your expenses and take control of your money. Try our financial calculators here.