With inflation being at its highest levels in years, many Kiwis are finding that the cost of living is rising way faster than their wages. And unfortunately, all seems to indicate that the inflation pressure is not as short-lived as originally expected.

So, how can you protect your finances from it? Here are some steps you can take, according to our SHARE advisers.

Savings

As inflation keeps soaring, the Reserve Bank is pushing up interest rates to curb it. This is not-so-good news for borrowers, as we’ll see shortly, but it is good news for savers.

Some banks are increasing their term deposit rates to levels that haven’t been seen in seven years. So, now may be a good time to consider these options rather than leaving your money in a low rate savings account.

Alternatively, you could consider investing some of your savings in KiwiSaver or managed funds (we’ll return to this shortly). Whatever you choose to do, it’s important to make sure that your emergency fund is in good shape, as unexpected expenses may hit your finances harder in this environment.

Investing

During uncertain market conditions, like the ones we’re seeing now, you need to be able to access cash with short or little notice, but that doesn’t mean you should overlook your long-term investments. And diversification is king.

Some markets and asset classes are likely to respond better to the current conditions, so having them in your portfolio can help you create a hedge for high-inflation and volatility. Like to review your investment strategy? Please don’t hesitate to contact us: our SHARE advisers can help you diversify in line with your goals and risk tolerance.

Debt

High inflation usually means that the Reserve Bank needs to increase the Official Cash Rate to try and curb it. This, in turn, makes new borrowing more expensive. And that’s why a key way to handle inflationary periods is often to pay down debt as fast as possible, so that your finances are less ‘exposed’ to interest rate trends.  

More expensive borrowing, of course, has repercussions for home loan borrowers as well. If you’d like to learn more, check out our other article ‘Why are mortgage rates rising?’ Protecting your finances from inflation – SHARE (sharenz.com): it’s about rising interest rates, and some key things to think about if your fixed-term rate is due to expire soon.

Your salary

If your salary doesn’t keep up with inflation, you will effectively earn less in real terms. So, now may be a good time to ask for a pay increase or find a higher-paid job.

While it’s unlikely that your employer will increase your pay by 8 per cent per year to keep up with inflation in the coming years, it’s worth asking for a boost – especially if you haven’t received a pay rise in a long time. Rather than just asking, make sure you give your employer some context, making a case as to your worth and the fact that your salary has declined in real terms.

Your spending

Rising cost of living can be a good opportunity to review your ‘big financial picture’ and do a bit of budgeting. By knowing exactly where your money is going, you should be able to identify where some cuts can be made.

Many people, for example, start with setting up a budget for groceries and other regular spending. It may also be worth comparing power companies and mobile/broadband providers, looking for any offers out there. And don’t forget to get rid of any unused subscription costs you may have.

Insurance

Thinking about insurance costs? Unfortunately, when living costs are rising, insurance is one of the first items that people look at trimming. And that can mean losing an important safety net right when you need it most.

Keep in mind that, if you got cover before certain medical issues happened, those are covered by your current insurance. But if you cancel your policy and then re-apply for cover in the future, those will likely be excluded.

Once again, we’re here to help. Our SHARE advisers can work with you to reassess your insurance and possibly find ways to bring costs down without losing a key layer of financial protection. What’s more, if your financial circumstances have changed, your insurance needs may have changed too: an insurance review can make all the difference to your future outcomes.

Like to discuss this further?

Our SHARE financial advisers are here to answer any questions you may have, big or small: click here to find an adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.