How to Minimize the Impact of Inflation in Personal Financial Management

In the situation of the Great Recession, many families are still feeling the effects of high inflation rates. The cost of education is increasing, the fashion market is increasing, and the price of clothes is getting more affordable. However, health insurance premiums increase while you have to rack your brain to still be able to make ends meet and guarantee retirement.

Anxiety and fear of financial problems will have an impact on employee productivity and morale. To deal with this problem, the company can provide training for employees. Employees will feel more comfortable, productive, and enthusiastic because employees no longer need to think about financial problems.

In addition, understand about financial conditions that can change such as inflation. Then, what is inflation? How does inflation happen? What should you do to minimize inflation? Knowing the basic situation related to inflation can make financial preparation more mature.

What is Inflation?

Maybe you often hear the old saying that the price of products in the past was not as expensive as now. This happens because inflation is a continuous increase in the price of goods or services.

The price increase is not always a bad thing. On some occasions, inflation can force people to save and invest for a more secure future. However, too much inflation is also not good because price increases from year to year are not necessarily accompanied by an increase in employee salaries.

To anticipate the negative impact of inflation, you must know what the personal inflation rate is. That way, you can prepare yourself and know the right steps to take when you experience a crisis.

How to Calculate Personal Inflation Rate

The first step you can do is enter your expenses into a spreadsheet or excel. The cost of living, namely food, drinks, household matters, clothing, transportation, health costs, vacations, education, communication, and other goods and services. Also take out your debit or credit card statements from last year, and enter expenses into that data.

Then calculate the cost of spending these things in the last month. Also make sure you calculate other costs, such as insurance and installments and then add them up and divide by 12 to find out how much you will spend in a month.

Your inflation rate is calculated by subtracting the total monthly expenses from the previous year by the last month's expenses. Then the amount is divided by last year's expenses.

As an example of calculating personal inflation, it is known that your last month's expenditure was Rp. 5 million, and a year ago it was Rp. 4.5 million with a difference of Rp. 500,000, then:

IDR 500,000 / IDR 4.5 million = 0.1111 × 100 = 11.1%

The big 11.1% is your personal inflation rate.

How to Minimize the Impact of Inflation

If you already realize how important the inflation rate is, it's a good idea to know how to minimize its impact.

1. Cut expenses

You always have 10% of the cost that can be deducted. If you live alone and always rely on food delivery services, it's a good idea to start thinking about cooking yourself. This will help you reduce expenses.

2. Get a raise

While you are still actively working, try to get a raise. In addition to paying attention to the UMR level in the city where you work, it's a good idea to know what the average salary of employees with the same field of work and position is. If your salary is still lacking, you can look for odd job opportunities.

3. Social Security

To avoid running out of money, workers have the ability to increase income. Retirees on the other hand, rely heavily on a fixed budget. Therefore, before you work and retire, pay attention to BPJS and pension insurance. Make sure that the company has registered BPJS Employment so that the pension insurance is guaranteed.

4. Take care of your assets and yourself

The cost of maintaining and repairing the assets you have is not small. Therefore, take care of your valuable assets such as work equipment, vehicles, and housing. It is also as important as taking care of the health of yourself and your family.

5. Plan for the future

The cost of education is one of the costs that is felt to be experiencing continuous inflation. If you plan to have children or continue your education, it's a good idea to save and make education insurance from now on.

In addition, inflation is also important for business people. In addition to the level of consumers' ability to buy products is decreasing, the price of basic commodities may also increase. Indeed, there is not much you can do to contain inflation. However, by understanding your personal inflation rate, you can plan your finances better.