A word that was a frequent appearance in the Economics textbooks, ‘inflation’ is a very real concept and as millennials, it determines everything right from the lifestyle we lead to the things we purchase to our spending power to our future opportunities. As a young person who has been tiding through the pandemic, recession coupled with inflation can put you through a sticky road. But here’s a guide on getting through this crisis.
What is inflation?
When the prices of goods and services rise in the economy making it difficult to purchase things, the situation is known as inflation. In earlier times the amount of currency that might have been able to buy a certain number of types of goods, is not enough now thus making it tough. The result of an economy undergoing inflation means more currency buys lesser goods and thus for people who work hard to make ends meet, this could mean a lifestyle dictated by the market.
For a millennial, inflation is no happy word as when the markets are facing a crunch, it puts a damper on lifestyle. Millennials as is are facing loans, planning for homes and studies that require their cash inflows to be strong and struggling to achieve all of this in the face of recession worsened by the pandemic.
An increase in the price of regular items worsens this scenario.
How is India battling inflation?
According to data released by the Ministry of Statistics and Programme Implementation in December 2021, India recorded a benchmark inflation rate of 5.59%. As India is currently battling its third wave of COVID 19, with omicron cases surging high, the situation is grim.
Charu Chanana, lead economist for Asia at Continuum Economics said to CNBC that “We actually do see inflation getting above the 6% level — which is at the upper limit of the RBI central bank. The omicron wave suggests further challenges. In all of the previous Covid-19 waves, we’ve seen significant supply chain impacts. And the impact on inflation has been significant.”
How to navigate through the crisis?
In order to navigate your way through the financial crisis, there are several ways that can work for you. These include the following tips.
Make a budget
A budget ensures that you do not exceed your expenditures and save more than you are spending. Research indicates that people who budget are happier than youngsters who don’t. Many financial experts suggest following the 50:30:20 rule, wherein you allocate 50% of your earnings to essentials such as living expenses, food, etc. 30% should go to wants such as luxury items, clothes, etc. 20% should go to your savings.
Inflation points to the prices of things going up. Thus, the faster you make your essential purchases, the smarter it will be as you will end up paying more in the future.
Balance it out
Since inflation depends upon the economy and the markets and is not in your control, change things that are in your control. Look for high paying jobs if your experience matches these, in order to increase your spending power.
Investing wisely during times of inflation might seem a crazy choice. While the cost of things is rapidly increasing, you need all the money on hand to pay for this. Investing might seem an unwise thing, but experts disagree. Ramit Sethi, an American personal finance advisor says “Investing is the single most effective way to get rich. Inflation can be bad for individuals when you just keep your money sitting in a bank account and do nothing else with it.”
Chairman and CEO of Berkshire Hathaway, Warren Buffay urges millennials to take advantage of these times saying “If you’re the best teacher, if you’re the best surgeon, if you’re the best lawyer, you will get your share of the national economic pie regardless of the value of whatever the currency may be. The second best protection is a wonderful business.”
Buy instead of renting
There is a high chance that if you rent instead of buying, during inflation you will be paying a higher amount adding to your financial woes. Buying will indeed mean that you are spending more but it will be a one time purchase. This means that whether inflation rises or falls, your debts will not fluctuate according to it.
While India’s inflation skyrockets and is set to increase further owing to the growing number of COVID cases, young people would do well to manage their finances until things look up in the economy. The RBI controls this by reducing the amount of money that is borrowed by commercial banks by increasing the repo rate. This reduces the supply of money in the economy and brings down inflation.