How to Make Your Finances Inflation-Proof in the Philippines

Inflation is an unavoidable presence in any economy. Like a persistent fly, it can multiply despite efforts to swat it down. Embrace it as one of life’s constants, alongside taxes and death.

Living costs are escalating each year, and inflation rates in the Philippines have hovered between 1.25% and 5.21% over the past seven years. This trend shows no sign of immediate reversal. In 2023, average inflation was 6%, with December reaching a low of 3.9%.

Your spending power will decrease if your salary doesn’t keep up with inflation. Here are tips to make your finances inflation-proof this year and beyond. Let’s begin!

Contents

• What is inflation?
• 10 Moneysmart tips to beat inflation this year and beyond
  1. Get rid of consumer debts with high interest loans
  2. Cut back on non-essential items
  3. Take advantage of the promotional deals and discounts
  4. Invest in income-generating assets
  5. Make plans for your children’s education
  6. Plan for potential emergencies
  7. Make changes to your daily spending habits
  8. Invest in stocks, mutual funds, and ETFs
  9. Consider gold as an alternative to cash in the bank
  10. Put extra funds in Modified PAG-IBIG savings

What is inflation?

Inflation refers to an increase in the prices of goods you buy regularly. It occurs for various reasons, but one major factor is the economy’s growth. When the economy is doing well, and people have more money to spend, businesses can afford to charge higher prices for their products and services.

Factors such as changes in government policies, supply and demand dynamics, and fluctuations in the cost of raw materials can also contribute to inflation.

For example, if the price of electricity goes up by 5%, then your cost of living has also increased by 5%. The effect of inflation will vary depending on how much money you spend on specific items.

Let’s say you’re single. You earn ₱100,000 a month and devote 20% of your income to rent alone. If inflation is 3%, you’ll have to pay an extra ₱3,000 every month to cover the cost of your accommodation. That’s a big chunk of your salary gone.

10 Moneysmart tips to beat inflation this year and beyond

If left unchecked, inflation can greatly impact your finances over time, so it’s important to adjust your budget and income streams from time to time.

1. Get rid of consumer debts with high-interest loans

When money becomes tight, people often rely on credit cards and high-interest personal loans to bridge the income-expense gap. However, this worsens the situation, creating more monthly obligations to fulfill.

The easiest approach to get out of this mess is to cut debt as much as possible. Pay cash. Abstain from credit cards and loans until you have built a solid emergency fund and stable cash flow for your expenses.

High-interest loans and credit cards can pile up interest charges, making your debt burden heavier. As inflation rises, it becomes harder to keep up with interest payments. By clearing consumer debts, you can free up funds for better uses like saving or investing.

2. Cut back on non-essential items

When the price of groceries increases by 5%, it’s manageable to absorb the cost. But when nice-to-have items like premium steak or sugar-free ice cream increase by the same percentage, there’s no need to feel obliged to buy them. These expenses are non-essential and are now more expensive than before.

To counter the impact of inflation, curtail non-essential expenses and explore budget-friendly options like fish and fruits. Consider sacrificing occasional sumgeopsal nights out and weekly Starbucks coffee dates with friends to save money.

If you have children, it could involve making changes to your home to accommodate the needs of everyone in your family. Perhaps you’re better off without a Netflix subscription and more interactive plays and activities with nature.

3. Take advantage of the promotional deals and discounts

Make the most of the promotional deals and discounts that come your way. Embrace the opportunity for savings whenever possible.

Keep an eye out for special promotions and aim to save at least 5% off your monthly expenses this year by taking advantage of them when they become available.

If you’re a credit cardholder, take advantage of the promotional deals every month or season. Usually, when shopping festivals such as 10.10, 11.11, and 12.12, you can buy even big-ticket items and save as much as 70% off. Always be on the lookout for promo codes and special offers.

This is not the opportunity to buy everything you want but to be a smart shopper when buying items you need, that can be stocked for months or years without getting spoiled.

4. Invest in income-generating assets

Inflation erodes the purchasing power of your money over time. By investing in income-generating assets, such as rental properties, you can earn a steady stream of income that keeps pace with or even surpasses the inflation rate.

This allows you to preserve the value of your money and maintain your standard of living in the face of rising prices. Airbnb hosting is one of the popular business models among young Filipinos, with 68% of Gen Zs and millennials hosting their properties.

Consider downsizing your big house and renting it out for additional income. Alternatively, if you’ve saved enough for a downpayment and closing fees, explore real estate investments like land, houses, or condos.

5. Make plans for your children’s education

When raising a child, consider factoring in inflation for future planning. As they pursue higher education, taking steps now ensures they can cover the cost of tuition later. As of today, sending your child to a preparatory school will cost around ₱100,000 to ₱200,000 or more for premium Montessori education in Metro Manila.

Inflation affects everyone equally, so there’s no point in waiting until it becomes too late. It’s better to make a plan now and stick with it as much as possible. You can open a separate savings account with a high-interest rate and consistently save money for them.

Consider comparing educational plans of reputable companies like Sunlife Philippines, AXA, and Manulife and inquire about the premium plans.

6. Plan for potential emergencies

Having an emergency fund provides a sense of control over your finances. You can confidently address unexpected expenses without derailing your monthly budget and long-term financial goals.

This control allows you to stay ahead of inflation by avoiding unnecessary debt and ensuring your finances remain stable even during challenging times.

Ensure you have an emergency fund to cover unexpected expenses without resorting to debt. An emergency fund should cover your expenses for about three to six months.

7. Make changes to your daily spending habits

Reduce the impact of inflation by adjusting your daily spending habits. For example, instead of buying lunch at work, cook a home meal or try meal prepping over the weekend to save you more time and money.

Save money by changing your shopping habits (buying in bulk when stores offer discounts) and avoiding impulse purchases whenever possible.

If you love spending coffee at Starbucks, Coffee Bean, and other Tim Horton’s weekly, you should cut back those expenses and buy a decent coffee maker and brew your coffee at home.

You’ll be amazed how much you will save if you change your spending habits in this area.

8. Invest in companies you believe and love

Investing in promising companies that you believe and love can strategically outperform inflation. By understanding these companies well and anticipating their future success, stock prices may rise faster than inflation.

Some of these local companies pay dividends, a portion of earnings distributed to shareholders, which can provide steady income to counteract inflation. But remember that investing in the stock market carries risks.

So, do thorough research and seek advice from financial professionals. Maintain a diversified portfolio and invest wisely.

9. Consider gold as an alternative to cash in the bank

Investors often hedge money to gold as a strategy to beat inflation. Gold, known as a safe-haven asset, maintains its value over time. It has been a valuable store for thousands of years with uses in jewelry and electronics. Unlike fiat currencies, gold’s supply is relatively limited.

Gold has historically proven an effective hedge during high inflation, like in the 1970s. It generated impressive annual returns, making it a valuable component of an inflation-hedging portfolio in the long term. However, its effectiveness as a short-term inflation hedge can vary.

Gold’s role as an inflation hedge is debated among experts. While some see it as a long-term hedge against a depreciating dollar and market risk, others highlight its volatility and liquidity issues during crises.

Take note that its price is influenced by factors like market uncertainty and interest rates, and it doesn’t always move in line with inflation rates.

10. Put extra funds in Modified PAG-IBIG savings

Invest in MP2 for higher dividends compared to regular savings accounts. Historical data shows that MP2 dividends exceed inflation (up to 7% or more), preserving the purchasing power of your savings. It offers government-guaranteed security, even during economic downturns. MP2 dividends are tax-free, maximizing your returns.

MP2 dividends can grow exponentially if compounded annually. This investment option is accessible to a wide range of income earners, starting with only ₱500 per remittance. It’s an opportunity to invest, protect savings, and potentially outpace inflation.

Final thoughts

So there you have it. You don’t need to be a financial whiz or an economist to make your finances inflation-proof and live below your means. Still, you do need to keep up with what’s going on in the world around you so that when opportunities arise for growth, prosperity, and security, you won’t miss them.

Inflation is one of the most insidious financial challenges that we face. It can sneak up on you and slowly erode your savings, especially if you’re not careful about how much money goes out versus how much comes in. The best defense against inflation is to plan and take action now before it’s too late.

The best way to inflation-proof your finances is to be moneysmart in all your spending and investing. We hope that this blog has helped you create a plan for this year and always be ready. Let us know which among the list works best for you these days.