How to Protect Yourself Against Inflation

The cost-of-living pressures are hurting everyday Australians and it doesn’t look like it’s going to get better anytime soon. From groceries to petrol to bills, everything is going up and we are all chasing our tails trying to keep up.

In times like these, safeguarding your wealth is pivotal by adapting some simple financial strategies. Here are a few practical strategies that can be used in protecting you and your family against inflation to strengthen your financial foundation for the future.

1. Know where your money is going (tracking your spending)

When costs are on the rise, every dollar saved counts, and tracking your spending is the best way to know exactly where all your money is going. Are you paying for streaming services that you don’t use? Or maybe you are eating out more than cooking at home? Going through your bank and credit card statements is a great way to identify what has been spent, and determine areas that can be cut back. Lowering these discretionary costs won’t make a major difference to your lifestyle, but will reduce the financial strain.

2. Invest in Real Assets

One of the best ways in protecting yourself against inflation is to invest in real assets as these are known to appreciate in value over time. Investing into residential, commercial or industrial properties can deliver capital growth, along with ongoing rental income which will provide a dependable hedge. Additionally, commodities such as gold, silver and oil are also known for performing well in inflationary environments, with their prices rising in line with inflation. Investing in the physical commodities, or through commodity-focused ETFs and mining stocks will allow you to gain exposure within this asset class.

3. Diversify your Portfolio

Having diversification across asset classes and geographies can help in mitigating your risk. If one asset was to be impacted, you will still have others that may be performing better. Expanding out of the Australian’s market and looking at some global investments in countries with a lower inflation rate can provide a nice balance along with additional growth. Alternative assets such as private equity or infrastructure projects can also offer a shield against your wealth as they are less correlated with traditional stock markets.

4. Consider Inflation – Protected Investments

Specifically designed to help preserve your wealth during times of rising prices, inflation protected investments ensure that your purchasing power isn’t affected by adjusting their value in line with inflation. Government bonds such as Treasury Inflation-Protected Securities (TIPS) are designed to keep pace with inflation so your investment is able to uphold its purchasing power. Additionally, inflation-linked bonds offer returns that regulate in changing economic conditions that further enable you to protect your income from the effects of inflation.

While inflation can erode purchasing power, making it difficult to maintain your lifestyle, these effective solutions can help in protecting your wealth and ensuring you are well prepared for the economic challenges ahead.