20 Ways Consumers and Investors Can Fight Back Against Inflation

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Inflation is a destroyer of wealth and healthy personal finances, so how can you protect yourself?

Whichever way we look at the moment, prices are going up. The official rate in the US is 5.3% while in the UK it is running at 3.2% and Germany 4.1%. Central banks say that the price rises are “transitory” but at the same time have said they are likely to continue into 2022.

Prices are rising across the board – sometimes by huge amounts as in the case of natural gas. But less well publicised  price rises in food will be feeding through to the cost of groceries very soon, from coffee and orange juice to beef and even flour.

So what can consumers and investors do to alleviate the corrosive impact of inflation?

Through a mixture of clever budgeting, smarter living, savvy investing and making the labour market work for you, there are plenty of ways to fight back against inflation.

Your capital is at risk.

Use less energy

  • Wrap-up in blankets and wear hats in-doors to help cut down on heating costs
  • There is plenty of DIY home insulation that can be carried out cheaply (more below)
  • Use your car less and start riding a bike instead
  • Shop around for cheapest pump price
  • Use the oven less and the microwave more
  • Hang dry clothes and stop using the tumble dryer
  • Turn down the thermostat a few degrees
  • Stop using the desktop computer and switch to laptop only
  • Not a quick fix, but generating your own renewable energy such as solar will mean you won’t be reliant on the vagaries of the prices in the energy market.

Top home insulation tips

  • Use cellophane as insulation film for windows
  • Fill up gaps in doors and windows
  • Put up heavy curtains in your windows to help keep in heat
  • Insulate hot pipes and hot water tanks
  • Door snakes are excellent and cheap ways of stopping heat escaping and drafts coming in
  • Install loft insulation – unlike our other tips, this is relatively expensive, but will save money over the medium term. If you already have lost insulation, make sure not to cover it up with storage junk as it makes the insulating material less effective.

Become a smart shopper

  • Use cheaper stores – change to discount supermarkets
  • Change what you eat – eating less meat is good for your health, good for the planet and can also cost less.
  • Always do a shopping list and stick to it to avoid wasteful impulse buying
  • Dump expensive brands – often the branded favourites are made at the same factory as the non-branded goods, so breaking this buying habit could save you money with little real pain.
  • Buy in bulk, sign up for a wholesaler such as Costco
  • Make use of loyalty card schemes

Bag yourself a pay rise

  • If you don’t ask, you don’t get: ask for a pay rise factor in inflation
  • Factor in inflation when you make your pitch
  • Ask your employer to introduce an incentive scheme if one doesn’t already exist
  • Access in-house training to improve your skillset and make yourself a more valuable employee.
  • Change to a higher paying job if you don’t get a raise
  • If you are going to have to change job to secure a pay rise, then target sectors with labour shortages to increase your bargaining position

Save on water

Turn off the tap when:

  • Brushing teeth
  • Shaving
  • Washing hands

Taking a shower instead of a bath will save on a huge amount of water..

Get a job where you can work from home

Working from home can save you money. It means you don’t have to pay for commuting and will indulge in less discretionary spending such as buying lunch or heading down the bar after work with workmates.

Having said that, this might be better suited as a strategy for the summer months, when heating your home would not be a financial issue, so perhaps try to secure a flexible work pattern where you can choose when to work from home.

Apply for tax relief on the cost of working from home

You can receive tax relief on certain items related to working from home and the extra costs incurred, such as:

  • Gas and electricity
  • Metered water
  • Business phone calls, including internet access

You can either claim tax relief on:

  • £6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) – you will not need to keep evidence of your extra costs
  • the exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts

Find out more on the HMRC website.

You may be able to get your employer to help with items such as the cost of work chairs and desks.

Make your own lunch for work

This is an easy win. Spending £5 a day on lunch might not seem like a lot but it adds up – in this case £140 a month. That could be the monthly cost of heating your home and keeping the lights on this winter.

Buy stocks and shares

Buying shares is much better than holding your wealth in cash and watching the value decrease over the years as inflation bites. If you had held stocks in the last period of high inflation in the 1970s, you may not have made any money in real terms, but you would not have lost any either.

However, bonds investors who rely on a fixed yield would have lost out. Having said that, it is still best to have a diversified holding of asset classes, so don’t put all your eggs in one basket.

A bias towards equities is sensible at times of elevated inflation. Look at the following types of shares:

  • consumer staples

In particular go for stocks of companies in consumer staples that have greater pricing power.

  • dividend stocks

Dividend stocks that pay out a regular income are good way of boosting investment returns if the dividends are reinvested to maximise the compounding effect.

  • growth stocks

Growth stocks – companies that can grow at a faster rate than the average could provide a cushion.

Look into fund investing

Using a tax-free wrapper such as an Individual Saving Account means all the gains held within it are tax free. Check out our stocks and shares ISA guide.

If you don’t want the hassle of choosing individual stocks, then you could go with a mutual fund, where a fund manager does the work for you. Index funds and exchange traded funds are another popular choice. Read our guide to fund investing.

67% of retail investor accounts lose money when trading CFDs with this provider.

Get a second job

You can supplement your main income by taking on a second job to help weather the inflation storm. One good thing about the Covid pandemic was it showed how many jobs could be done remotely.

Because of the success of this approach, many companies have changed their working practices and intend to continue with remote working options, which can help workers who want to take on extra work, say in an evening answering customer service queries.

If you are on a fixed income such as a pension or welfare benefits of some description, you need to take into account how the employment could affect your fixed income payments.

Buy and invest in property

Real estate is a good asset to hold during inflationary times because the price of the property can rise with general inflation, so it acts as an efficient store of wealth.

It is also worth considering going on a long-term fixed rate mortgage. Interest rates could start rising as soon as next year. You could anticipate that by changing to a long-term fixed rate mortgage.

If you want to invest in property Real estate investment trusts (REITs) are a great route in that will enable you to access areas beyond the residential property market, such as commercial property. Warehousing is a much sought-after sector at the moment because of its key role in e-commerce.

Pay off less debt out of current  income

It is generally a good idea to pay off debt such as on credit cards before starting to save or invest. However, it is worth bearing in mind that inflation is a debtors friends. The value of debt falls in periods of high inflation because the size of the debt stays the same but the debtor’s income is likely to rise, making it easier to pay off the debt.

Depending on the level of  interest payments, it could be a smart move to reschedule debt so that it is paid off over a longer period.

Shop around for the best interest rate on cash savings

Inflation is on the rise, but there is no sign yet of savings rates going up, as they remain at historically low levels. But one of the likely results of higher inflation will be a rise in interest rates. As rates begin tor rise there will be much more room for shopping around for the best deals.

Trim your bonds exposure

Investing in debt assets in an inflationary environment is generally a bad idea, although there should still be room for some bonds in a diversified well managed investment portfolio.

Inflation is the enemy of the bond investor because the value of the fixed income from yields is whittled away.

Shifting some of your portfolio away from bonds and into equities. Another option tis to invest in inflation-protected securities, which we come to next.

Inflation-linked securities

Inflation -linked bonds are on-way of dampening the risks associated with bond investing in periods of high inflation. You can buy indexed-linked gilts . In the US Treasury Inflation-Protected Securities are a popular choice.

About a quarter of UK government debt is inflation-linked – that’s a problem for the government but not the investor in those indexed bonds.

Invest in gold and other commodities

Gold has built a reputation over millennia as a safe haven asset. Diversifying some of your investment portfolio into the yellow metal might help you sleep better at nights.

There’s a wider point to make about commodities such as metals, energy or foodstuffs. The price of many commodities are on the rise so why not invest in them and become an inflation winner.

Most good brokers and trading platforms will enable you to gain exposure to the price movements of a range of commodities, from crude oil to natural gas.

Read our guide to gold investing.

ETFs are an excellent way of gaining cheap exposure to a wide range of commodities.

67% of retail investor accounts lose money when trading CFDs with this provider.

Discount vouchers and sales promotions

Perhaps you are one of those consumers that used to sneer at loyalty cards, vouchers and sale promotions. Change that! Today there are plenty of sites that will enable you to find the best promo deals and vouchers from anything from restaurants to cosmetics.

Look out for deals and make the most of sales. Why buy stuff in the run up to Christmas when you can get the same items often much cheaper after the festivities are over  – that’s assuming the goods are not suffering from a supply shortage.

Don’t buy a car unless you really have to

Inflation is measured by a basket of goods. One of the key drivers of the inflation rate in recent times has been the rise in the price of second-hand cars and new cars.

The shortage of microprocessors has forced automakers to curtail production, crimping the supply of new cars to consumers. That has had a knock-on effect in the used car market, pushing up prices there too as supply constraints widen.

Put off buying a car for a couple of years if you can and avoid being stung by the current high prices which could come off the boil in a year or two as chip supply corrects to match demand.

Do you really need all those streaming services?

Being profligate when it comes to streaming services is easily done. You want to watch the next best great series, so you sign up to the service, but within a few months you can’t really justify the expense. Break from inertia and drop some of those monthly subscriptions.

If another hot show comes along and you don’t have the service its streaming on, you can always rejoin – and maybe grab one of those introductory deals.

Get free stuff

Sites such as Gumtree and freecycle.org will enable you get your hands on free items that people are giving away. This has to be one of the best ways of beating inflation – stamp on high prices by getting rid of price altogether!

Economy Watch will be looking at various aspects of fighting inflation over the coming weeks, fleshing out further some of the ideas above as well as adding to them.

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About Gary McFarlane PRO INVESTOR

Gary was the production editor for 15 years at highly regarded UK investment magazine Money Observer. He covered subjects as diverse as social trading and fixed income exchange traded funds. Gary initiated coverage of bitcoin and cryptocurrencies at Money Observer and for three years to July 2020 was the cryptocurrency analyst at the UK's No. 2 investment platform Interactive Investor. In that role he provided expert commentary to a diverse number of newspapers, and other media outlets, including the Daily Telegraph, Evening Standard and the Sun. Gary has also written widely on cryptocurrencies for various industry publications, such as Coin Desk and The FinTech Times, City AM, Ethereum World News, and InsideBitcoins. Gary is the winner of Cryptocurrency Writer of the Year in the 2018 ADVFN International Awards.