What does all this talk about inflation in the news have to do with your personal financial planning?

November 14, 2022

You know how petrol prices are skyrocketing and properties you’re looking to buy are priced through the roof... Seriously, it’s costing us almost Dh200 to fill up our 4x4’s gas tank these days! Well, you’re not the only one feeling this—inflation is rising at the highest rates in over 40 years, all around the world.

Wait, wait…but what is inflation? Put simply, it is the general increase in the price of goods, year-on-year.

Globally, inflation rates have been forecasted to shoot up to 3.5% in 2022. But, that’s on average — inflation rates in the UK are hitting as high as 7.9% and in the US as much as 6.2% (as suggested by February 2022 data). Closer to home, things are also getting more expensive…Inflation rate in Saudi Arabia has risen from 1.7% to 2.4% in 2022 and the UAE inflation rate is increasing from 2.3% last year to 4.2% this year!

Let’s consider this situation as an example: housing prices in the UAE are predicted to increase between 4-6% this year in general, and between 10-15% at the luxury end. If you’re a new investor (say, a newly-married couple) looking to buy, you may not be able to afford it. Now, for people who already own these assets, this is actually good news. But, as children's stories teach us, if the rich keep getting richer, a Robin Hood character will soon appear to cause chaos. Seriously, stealing may have been glorified in that story, but in the real world that lands people in jail!

People in this sticky situation tend to anticipate that interest from their banks will combat inflation, and so they put all their hard-earned cash in the bank (quite literally). However, as most banks in the UAE give you a return of around 0.15% to 1.70%, that doesn’t beat inflation. And so, technically, your money is worth less over time, sitting there.

So then, what are we supposed to do about inflation?

Here are some steps you can take to make your money work for you in these trying inflation times:

  1. Put your money in investments that can generate a return over time that beats the inflation rate (e.g. stocks, exchange traded funds, or even cryptocurrencies!).
  2. Be bold and ask your manager for a salary rise to adjust for inflation.
  3. Consider adding to your income streams — for example, by monetizing a skill. Given how much the creator economy has grown over the last couple of years, there are many tech platforms out there to help connect you with people looking for skilled services (such as Fiverr and Upwork).

You got this!

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