There is a rule of thumb we learnt long ago that with the right personal finance strategies, it is possible to achieve financial independence and secure one’s financial future.
Personal finance is a basic rule to divide your monthly after-tax income into categories. The basic three categories is about the management of an individual’s financial resources especially in an environment where inflation is high. Keeping your expenses in 50% for needs, 30% for wants and 20% for savings or debt pay off will keep inflation at an arm’s length. Inflation which refers to the unchecked increase in prices of goods and services, thus it affects one’s purchasing power, savings, and investments. It is possible to achieve financial independence and secure one’s financial future with any personal finance strategies. Most people can make millions but not keep millions without understanding personal finance.
Here are some personal finance strategies to achieve financial independence amidst a high-inflation environment:
- Develop a budget
Creating a budget is the first and foremost most critical aspect of personal finance. Detailing a budget tells where your money is meant to go instead of wondering where it went. A budget is a plan to keep and outline one’s income, expenses, and savings. By creating a budget, individuals can balance and track their spending to identify areas on unnecessary expenses. This will help them save more money, avoid overspending and achieve their goals.
- Invest in inflation-proof assets
There is a definition that financial security is to invest in assets. It is a common human mentality that being able to live comfortably on a fixed income is security. It is however a normal mentality to spend on liabilities instead of assets so it is essential to plan and start investing in assets in long term goals that can beat inflation. This means postponing non-urgent expenses for later, increasing current savings and investing in assets with a budget that generate higher returns than the inflation rate. Some will schedule stepladder investments in real estate, gold, mutual funds and stocks.
- Diversify investments
One should schedule once a year to revisit these investments. It is never a wise decision to put all eggs (investments) in one single basket. Expenses like these are diversifying investments. It is critical in order to minimize risk by removing unwanted subscriptions to maximize returns. One can invest in a chest of mix assets to achieve better returns such as stocks, gold, equities, fixed-income instruments, and alternative investments like real estate and commodities.
- Avoid debt
Once you have started a budgeting program, you may have a monthly surplus. To avoid significant debt of any kind, in a high-inflation environment, the first thing to do with the surplus is to plan for contingencies which can be a significant sudden burden. Build an emergency pool instead of taking on unnecessary debt, especially high-interest debt like credit card debt. Instead, individuals should focus on paying off their existing debt even if in small amounts and avoid taking on new debt.
- Invest in yourself
If you invest in yourself, people will like invest in you. Great opportunities will beat a line to your door because humans are the most promising assets ever. This is one of the most critical investments individuals can make in themselves. It really matters to you to improve the quality of live if it means investing in our own education, skills, and health. By improving their skills and knowledge, individuals can increase their earning potential and secure a brighter financial future.
- Have an emergency fund
While actions are crucial to building wealth, inflation can also lead to unexpected expenses. There are such cases of medical emergencies or job loss. Pandemics like corona have made everyone realize what really matters and the importance of financial stability and savings. It is crucial to have an emergency fund that can cover three to six months of living expenses. To avoid from dipping into their hard earned savings, long term investments will provide individuals with a financial cushion.
- Review and adjust investments
It is important to review and adjust one’s investment portfolios regularly. At any time when your financial circumstances change drastically this means monitoring the performance of investments and making changes are needed. Individuals should analyze and also rebalance their current portfolios regularly to ensure that their investments are aligned with their predetermined financial goals.
Finally, to achieve financial independence in a high-inflation environment requires a combination of strategies. Compare and analyze, reviewing regularly to note differences in actual and preferred asset allocation. Include budgeting to invest in inflation-proof assets, diversifying most investments regularly. Avoid debt, add funds, invest the excess, invest in oneself, have an emergency fund. What ever type of securities you hold, by following these strategies, individuals can better control and secure their financial future to achieve their long-term financial returns.