How You Can Outrun Rising Inflation Rates in Singapore

Inflation has been a hot topic lately. The rates have been rising for the past year and many people are worried that they'll keep going up forever now that we're recovering from the COVID-19 pandemic.

According to Singstat's report in November, Singapore's headline inflation rate is now at 3.8%, higher than economists' forecast of 3.4% and 0.6% more than October's previous high of 3.2%.

In another article published in early January by Bloomberg, it is reported that the US inflation has hit a 39-year high at 7%! Subscriptions like Netflix and Peloton also announced recently that they will be increasing their prices in 2022.

So, what exactly is inflation? And why has it been rising lately?

What is inflation

Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.

When the inflation rate goes up, the value of your salary or your money, in general, goes down because inflation means your purchasing power diminishes over time.

See also: Inflation and Why It Matters

Why is the inflation rate increasing

Inflation is actually a healthy process for your country. It may even be necessary. If prices are going up, it means your country is in good shape. It also means more money is in circulation and an indicator of good economic growth.

As we all know, the world has been pretty much in lockdown in the last couple of years, thanks to the COVID-19 pandemic. And since then, most economic activities have been moving at a snail pace if not at a standstill. This is especially true for industries like food and beverage, entertainment, or travel.

Now that we are in the year 2022, however, governments and economists are optimistic that the economy will start to recover with a bang. Optimism and expectations are high for an exponential economic growth spurt to make up for the last 2 years.

That's the reason why we're seeing the inflation rates increase; businesses are expecting consumers to be spending normally again, if not more.

Why should you worry

While that all sounds fantastic on a country level, recovery and all, things may not be fine on the people/citizen level, especially for the middle class and below.

Inflation is a sign that you should worry more about the long-term stability of your financial situation.

Yes, your pay will likely increase as well. The Straits Times had just published a news article not too long ago that Singaporean workers can expect 3.8% raise this year, based on a recent survey.

However, the raise is not that much as compared to the current inflation rate. In fact, it is almost flat out the same 3.8%.

This means you're not getting a raise at all! Your salary has just been increased, solely to level with the inflation. You do not get more buying power, and more importantly, the money you already have in the bank will lose another 3.8% in value.

See also: Guide to Investing During a Recession

Imagine your savings perpetually losing value over the years, while each time your income comes in, it's just on par with the inflation rate over the years. You're not only NOT moving forward at all, your finances are just regressing gradually.

By the time you're retired, your money would've lost a lot of value (assuming you have enough money to retire at all).

How to outrun the increasing inflation rates

There's no use getting mad or complaining about inflation. It's just what it is and there's no way you can resist it. Complaining about inflation is akin to complaining about your children growing up, i.e., it's a natural process.

The only way to get around it is to find ways to earn MORE THAN the inflation rate, or at least, tame the impact it has on your finances. How can you do that?

1. Do financial planning

Unmonitored spending and zero financial planning are already disastrous enough for your financial future. You don't know where your money goes, you will become penniless really quickly should you unexpectedly lose your active income, and there's a high chance you won't be able to ever retire. 

See also: 5 Practical Money Resolutions You Can Copy

Added on with inflation and the fast erosion of your money's value, you just might find yourself in hot soup sooner than you think. Therefore, the first thing you should do before you even think of beating inflation is damage control.

Plan your finances, budget your expenses, and get the necessary protection for yourself in case something happens. Only from here can you see where is the lack and which part of your finances needs "patching."

Learn how you can manage your money better by joining Sharon Au and Darren Lim, portraying a typical Singaporean couple, in an edutainment series called Money Money Home.

2. Get a side hustle

The side hustle or side gig culture is gaining popularity these days as more and more people start to realise that their salary is just not enough anymore.

From getting temporary gigs on freelancer sites to building a side business to work on at night after work, you can earn a side income or even a passive one to earn more and beat inflation straight from your laptop at home.

Most people would say they are not talented enough or not skilled enough to be doing these, but you will be surprised what people will pay for if you would just give it a shot and look around to see what you can do. 

3. Start investing

Unfortunately, not everyone has the luxury of time for a side hustle after their day job. This is especially true for those who have a family to take care of or... let's face it, those who are stuck doing overtime in their office every other day.

Or maybe, your day job is already rough enough, you just want to relax at the end of the day.

If you're in this group of people, we'll say... just learn how to invest.

There is a sea of investment products you can invest in and use to grow your wealth out there. Stocks, bonds, and ETFs, among others. You just need to find one that is suitable for you and fits your risk appetite, and start to gain the right knowledge around it.

With an inflation rate of around 4%, all you need to do is find one that can give you a return beyond that percentage and hopefully much more. 

Inflation is a natural process for a growing country and there's really no point in griping about it, especially if we want to live comfortably in a developed country with great infrastructure.

The only thing we can do for ourselves and our future is to find ways to grow our money as we can, such as investing, so we don't have to work until the day we die.

But beware! Do this with caution, never invest blindly or follow the herd, because it can cost you a lot if you don't have the right knowledge.

Interested to learn how to create passive income through investing? Join our free online masterclass.