Understanding Inflation and How you can Escape it with These 3 Best Low-Risk Methods

Inflation is a persistent and insidious problem that continues to affect economies worldwide. Whether you notice it or not, inflation also affects you as an individual, and you should find a way to protect yourself against it.

If financial stability is one of your goals, you first need to beat inflation, and that is something your bank won’t just help you pull off with that sweet 0.06% interest rate.

Well, this article will help you understand what inflation is, how it is stagnating your journey to financial stability, and how you can escape it.

Let’s delve deep into it!

What is inflation?

Simply said, inflation is a sustained increase in the prices of goods and services over a certain period. It is a common phenomenon in many countries and is mainly caused by the rise in the money supply, faster economic growth, increase in wages, among other factors.

Why should you escape inflation?

You might not notice the hideous effects that inflation has on your financial life, because it is something that happens over a long period. Regardless, it is essential to be aware of some of the reasons why you might want to escape it. These reasons include:

1. Inflation erodes the value of your money.

With the ever-rising inflation rates, the number of dollars in your bank account will not be able to buy as many services and goods in the future, as they currently do. 

2. Inflation might cause you to work more.

A constant wage over a long period will not meet your daily needs and wants, and you will be forced to work multiple jobs to meet these needs.

How can you escape inflation?

It is essential to have a plan for when the inflation rates rise.

To begin, investing in assets that don’t lose value over time is your first step to escaping inflation. With an average inflation rate of 2.5% that the Federal Reserve tries to maintain, we have seen that having money saved in your bank account won’t just make the cut; neither will that constant wage at your job do. So, how do you escape the sharp claws of inflation? 

well, here are some low-risk and thoughtful ways to protect yourself from inflation:

1. Invest in stocks

Before you rub this off as another stock market article, I won’t ask you to go and analyze every stock you come across, make a buy, and hope that it will rise in value. My method is far more conventional and worthy of reliance.

You can quickly get started with the stock market by investing in S&P 500. The S&P 500 is a stock market index that tracks the performance of the top 500 companies in the United States.

Since its launch in 1957, S&P 500 has generated average annual returns of 10.5%. This impressive performance is thanks to the index’s focus on quality companies, which typically have higher equity and dividends returns.

This index is considered a low-risk investment asset because it does not depend on the performance of an individual company but rather on the performance of the general stock market.

How risky is it to invest in S&P 500?

While no investment is risk-free, it is improbable to lose money with the S&P 500, thanks to the diversified nature of the index. For example, if a company in the top 500 tier declines in value, the profits from other companies will compensate for that loss, and you’d still be in profit regardless.

There’s no guarantee that the S&P 500 will continue to yield such returns, but it can definitely give you a solid and competitive hedge against inflation.

2. Invest in cryptocurrencies using an interest yielding account

To escape inflation, you can also open a crypto interest yielding account and earn interests of up to 17% per annum on your capital.

Cryptocurrencies are subject to volatility, making them a frightening class of assets for investors. To dodge this volatility, you can choose to earn yield with stablecoins. Stablecoins are digital currencies whose value is pegged to fiat currencies such as the US Dollar, making them immune to price volatility. Some common stablecoins include USDC, USDT, BUSD and so on.

Some platforms that offer you yield on your crypto include Nexo, Celsius and Kucoin. These platforms are quite similar to the traditional bank that you are used to, but rather specific to cryptocurrencies and blockchain.

When you put your money into one of these platforms, they loan out the funds to investors and institutions, who in turn pay back with interest, just like the banks.

When borrowers pay off their loans, you are paid back your money with an interest rate – but higher than the 0.06% that your bank gives you. Have a look at the interest rates of these platforms here.

The platforms also provide a flexible payout schedule. You don’t have to wait for an entire year to cash out your accrued profits; instead, you can cash out on a daily, weekly or monthly basis.

What is the risk of opening a crypto interest yielding account?

A crypto interest yielding account is also a low-risk investment option, thanks to the concept of collateral loans. Collateral is the money locked aside in a borrower’s account that can be used to repay the loan in the event of a default. For loan approval, the borrower must be able to provide some sort of collateral that protects your money as a lender.  

3. Find a job with constantly rising wages

Another method you can use as a hedge against inflation is finding a job that offers you a promotion every once in a while or gives you a pay rise after a certain period; this is the hardest on this list, but it doesn’t hurt to try.

Conclusion

From the moment we are young, we are taught to save money, but no one warns us of the harsh reality of inflation. The very banks that we entrust with our savings eat us alive by giving us pennies and keeping the massive chunk of money they make from the interests.

It is a personal responsibility to knock down inflation’s effects on your finances, and I hope this article gave you some insights on how you can achieve that.

You all know my favorite part of this article is when I hear from you. So, tell me, what are some of the tips and tricks you are using to escape inflation? Let’s have a chat down below!

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