5 steps you can take to cope with inflation

5 steps you can take to cope with inflation

If you’ve only got a minute,

  • Review and track your expenses regularly to make adjustments
  • Besides reviewing your expenses and investments, there are ways to protect yourself from inflation.
  • Prices are going up, but that doesn’t mean you are worse off – investing can help.

High inflation has been the talk of the town. Singapore’s headline consumer price index (CPI) and core inflation rate reached 6.7% and 4.4%, respectively, in June 2022 – the highest since the Global Financial Crisis period. High inflation erodes consumers’ purchasing power and undermines income growth. Changes in consumption patterns brought on by the economy’s reopening complicate matters further and pent-up spending against a backdrop of high inflation could have major implications on financial wellness.

Economists have said that external inflationary pressures are likely to continue to be strong as global commodity prices stay elevated, with ongoing supply chain issues driven by both the Russia-Ukraine war and the regional pandemic situation.

Many Singaporeans may feel upset about the rising prices on everyday items, or defer travel plans even though most pandemic-related restrictions have been lifted. However, there are ways to combat inflation without taking drastic measures.

Here are five ways to start:

1. Reduce unnecessary spend

With inflation not likely to ease anytime soon and the impending GST hike next year, families can establish a habit of looking through their expenses on a quarterly basis to make adjustments.

You can split your expenses into fixed and discretionary spends. Examples of fixed expenditures include utility bills, mortgage loan and rent whereas discretionary expenditures are usually “good-to-haves” such as entertainment, gym subscriptions and wants.

Expense growth rates (by categories) for an average customer

5 Steps you can take to cope with inflation

The latest DBS research report “Are you losing the race to inflation” saw double-digit growth in all expense categories over the past year. Apart from transportation (+60.2%), spending on shopping, entertainment, and travel, which are discretionary in nature, witnessed the steepest increase (+56.7%). The increase in transport and food expenditure could be driven by both inflation (i.e., higher prices), as well as the reopening and easing of COVID measures, resulting in higher mobility and spending. The spike in expenditure for shopping, entertainment and travel stemmed largely from pent-up demand.

Since inflation affects everyone differently depending on your expenditure patterns, you can work on reducing spend on “wants” since they are not absolutely necessary. But you do not need to go to the extreme of cutting them out totally if it impacts your life negatively. You can consider cutting down the frequency or reducing the amount you spend each time – every little step counts! Use the digital financial advisory tool DBS NAV Planner to help you keep track of your expenses and set up a budget.

You may also want to cancel subscriptions that you are no longer using. For instance, gym memberships, Netflix subscriptions, Spotify and online software subscriptions are common ones to review.

For fixed expenses, you can work on switching to more budget-friendly options. If driving to work is a fixed expense to you, you may switch to just driving your car during weekends and take public transport to work instead. This way, you can save on petrol and parking costs.

Those who are servicing their home loan may consider refinancing or repricing if they are out of the lock-in period. Do a cost-benefit analysis first and consult a home loans specialist. Perhaps a fixed rate loan may make more sense during this period as it will offer more certainty amidst a rising interest rate environment.

2. Shop smart

Consumers are now spending 64% of their income, versus 59% a year ago. The rising proportion of expenses to income in May 2022 suggests that the growth rate of expenses has outpaced that of income. With the impending GST hikes, consumers will need to tighten their belt to ensure that they are spending within their means.

Expenses-to-income (%) of an average customer in May 2021 versus May 2022

5 Steps you can take to cope with inflation

There are many ways in which we can shop more wisely to reduce our everyday expenses. Here are some suggestions:

  • Buying house brand products at supermarkets
  • Non-perishables can be bought in bulk if there is significant discount and if you have storage space (e.g diapers, detergent, toilet rolls)
  • Shop nearer to closing time – some shops like bakery, deli counters in supermarket, sushi takeaways offer discounts towards the end of the day
  • Consider buying second-hand items via platforms like Carousell. Sometimes, you can even find brand new items that are cheaper than retail price. It is also more eco-friendly!
  • Using credit/debit cards that are more suited to your lifestyle to earn cashback

Do note that credit cards are double-edged swords so only use them if you have control over your spending as credit card debts can snowball quickly if they are not well-managed.

3. Inflation-proof your savings

If you have a healthy amount of savings (3-6 months of emergency cash and more), kudos to you! While emergency cash should be kept liquid, keeping the rest of your savings in a simple savings account will not preserve your purchasing power, especially when inflation is at an all-time high.

Time value of money, assuming different rates

5 Steps you can take to cope with inflation

This is because inflation will have a detrimental impact on your idle cash savings. During periods of high inflation, cash loses its value at a rapid rate (Figure 15). With an inflation rate of 5%, your $100 in a savings account from year 2022 will amount to a mere $38 in 20 years’ time, that’s why it’s important to at least preserve the value of our savings over time.

So what can you do?

Savers can look out for ways to save better. There are relatively safe instruments that offer higher interest rates than a savings account where you can park your money. Some examples include higher interest-yielding savings account like DBS Multiplier Account, and low-risk instruments that can generate decent returns like Singapore Savings Bonds, endowment insurance plans or money market funds.

Beyond saving, you’d need to start Investing your money over the medium to long term for a better chance at beating inflation and making some returns to fulfil your financial goals. Never tried investing? It’s not as daunting as you think.

4. Start investing

The DBS report indicated growth in total investments of customers by 24.5%, outpacing the growth in expenses of 22.2% over the year. In a high inflationary environment, you should continue to look to investments as a means to generate higher returns above of the rate of inflation. This will help mitigate the depreciative effects of inflation on your wealth.

If you’ve never invested before, now is the best time to start! For beginners, you can consider simple methods which does not require you to stock-pick. One approach is to invest through a Regular Savings Plan (RSP) like the DBS Invest Saver.

A RSP lets you invest a fixed sum, starting from as low as S$100 monthly. The amount is deducted from your designated DBS account on the 15th of every month and is invested into your choice of exchange traded funds (ETFs) or unit trusts (UTs). This helps you accumulate your investment steadily and progressively.

With dollar-cost averaging, there is no need to time the market as you buy more units when prices are low and less units when prices are high. Over time, the average cost of your investment could potentially be lower versus a one-time, lump sum investment.

You can also consider robo-advisor digiPortfolio which is a hybrid of human expertise powered by robo-technology. Our team of portfolio managers carefully selects ETFs to create quality portfolios, monitors the market regularly and ensures alignment with our Chief Investment Office’s views to achieve optimal asset allocation and portfolio resilience. It is designed for investors who do not have the time to watch the market, wants to invest simply and prefers to leave it to the experts.

For more ideas to get you started on investing, read How to start investing

For seasoned investors, you may be looking for investing ideas in this inflationary environment. According to the DBS CIO office, the listed sectors are typical beneficiaries of a rising inflation environment:

Commodities: With supply shortage and disruption, oil, base metals, and gold will typically outperform.

Energy Majors: Rising energy prices is one of the main factors leading to the current inflationary environment. Not surprisingly, investors can hedge their portfolio against inflation by gaining exposure to energy majors.

S-REITs: S-REITs have provided stable dividend yield between 5-6% and have had a strong track record over the last decade with consistent dividend payouts and capital gains. S-REITs serve as a good inflation hedge given that rental and property values tend to rise in tandem with rising inflation.

Increase your income

Last but not least, finding ways to earn extra income can help to relieve some of the pressure from the increased cost of living. If asking for a pay raise is not quite possible, you can explore various sources of side income.

Some examples include tutoring, using your car for private hires, selling items that you no longer use or making some money out of a hobby like baking. Beyond these side hustles which might sap too much of your energy, one alternative is to work your money harder via a diversified portfolio of investments.

Ready to start?

Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.

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Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

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