While there has always been an effective case for investing and having your money work for you to grow your wealth, when we see inflation rising and overall positive market performance, it makes even more sense.

It was reported that the Consumer Price Index (which is a measurement of inflation of products that we all buy) for December 2021 was 4.8% higher than December 2020. That means we were paying an average of 5% more for everything from groceries to electronics and beyond. Of course, when it comes to the cost of energy and housing in areas like Ontario we’re seeing an even greater rise in those prices.

Inflation, supply chain issues, demand, and you

We’re seeing more and more products and services increase their prices during the pandemic for a number of reasons. For many, supply chain issues have increased their cost, the consumer’s demand for the product, and the time it takes to get the product in the hands of those consumers. This brings added costs to the business, which are being passed on to the consumer. Service providers that now have inflated costs in the supplies they need are also now passing these increases on to you, the consumer. This fee increase can also include the new reality with additional PPE required, and less appointment times available to be booked. Life for so many is just more expensive right now.

What does inflation at this rate mean for your earnings?

The funny thing about inflation is it very rarely coincides with your paycheque increasing. While some employers offer a 2(ish)% cost-of-living increase annually, many have had wage freezes for years in order to just keep people employed. This means that with this increase in inflation, your paycheque doesn’t stretch as far as it once did. Have you noticed? This makes it a good time to review your cashflow management and make adjustments to account for the increase in basic needs like groceries and personal care.

What does inflation at this rate mean for your savings?

If you’ve got a nest egg of savings and have been thinking about whether or not to put it to work for you, you’re in the perfect storm to make a change. Not only is your savings losing you money right now with it not keeping pace with inflation (your buying power is decreasing), but we’re seeing a dip in the markets starting out 2022* making it a good opportunity to invest new money for long-term investment strategies.

What can you do?

1. If you’re feeling like your dollars aren’t going as far today as they did a year ago, sit down and review your cash flow. Figure out how much more you’re spending on certain items and make adjustments.

2. Start shopping the sales if you’re not already. There are incremental savings that add up over time if you’re deal savvy.

3. Practice conscious spending, where you’re more thoughtful about where you spend your money.

4. Look at the debt you may be carrying and how you can consolidate large payments to free up some cash flow (but be mindful that interest rates are on the rise).

5. Review your savings and investment strategies for any opportunities to increase your cash flow or wealth.

To read more about inflation, check out a previous post here.