Imagine that you make money, spend some of it, and then save some of it, but have you ever questioned why prices of goods tend to increase with time?
Every day you wake up and hit the street to get your daily 2k, but recently it seems that ‘urgent 2k’ can no longer sustain you.
You must have noticed that the cost of things in the country has increased over time, and you cannot afford that meal you used to enjoy. That’s inflation!
Inflation is a general increase in the pricing of goods and services over time. It indicates that, on average, items are more expensive than they were previously.
When there’s inflation, every unit of a currency just like the naira cannot buy what it used to previously. For instance, with N100 you get a bottle of your favourite drink, but now you have to pay N200 to get that same bottle.
According to reports, Nigeria’s current inflation rate is 22.8 per cent.
Beyond affecting the economy of a nation, inflation also affects your finance. You can barely save or invest from your salary anymore.
This is how inflation affects your finance.
Reduction in purchasing power
One of the first effects of inflation is that it reduces your purchasing power.
As stated earlier, the inflation rate in the country presently has made it almost impossible to get the same value for a certain product every month. If a loaf of bread costs ₦500 today with the current inflation you might likely get it at N614 when next you visit the bakery.
Planning your future
As much as we work, everyone saves or invests to afford a much better life in the future.
If you plan to buy a car in the next two years, with a high inflation rate, you might have to save more to buy that car or settle for something affordable.
If you save N100,000 monthly to buy a car in two years, that’s N2.4 million. There’s a high chance the price of the car would have gone up to N3 million then, leaving you with an N600,000 deficit.
With the rising costs of goods, you might have to modify or readjust your lifestyle.
To always stay within your budget or still have some amount left every time, you might have to cut down on some things that are not essential, go for cheaper options, and do a scale of preference.
Increase in interest rate
If you take loans for your businesses or personal things, there’s a high chance you will pay more for the amount you borrowed.
To address high inflation, the Central Bank of Nigeria in May increased the interest rate in the country from 18 per cent to 18.5 per cent. This means when you take a loan now, you will pay a bit more.
Inflation may be more of a technical term to you but it impacts your finances.
As an individual, you have to keep yourself abreast of the situation and also ensure you are flexible enough to adjust to the realities in the country.