According to the IMF “inflation is the rate of increase in prices over a given period of time”. Furthermore, the IMF states that “Inflation is typically a broad measure, such as an overall increase in prices or the increase in the cost of living in a country”. Inflation can be understood by an average citizen as the increase in cost for the same set of goods and services within one year. Because of inflation the standard incomes and savings of people are worth less than what it was prior to the measured time. The goal of this article is to establish the idea of fighting inflation for everyday people. We will tackle this issue from the perspective of multiple income streams and investing.
Multiple income streams
One of the best ways of fighting inflation is to have multiple income streams. The purpose of multiple income streams is to diversify the number of sources of income an individual must save and invest. Furthermore, by having multiple income sources individuals are less vulnerable to the loss of their jobs or to unexpected cost burdens. As mentioned prior, diversified income sources, saving, and investing are the sequence of actions needed to successfully fend against inflation. Creating multiple income streams and investing are therefore not completely unrelated.
James Royal (2022) “With passive income, you can have money coming in even as you pursue your primary job. Or if you can build a solid stream of passive income, you might be able to kick back a little. A passive income gives you extra security”. The purpose of generating passive income is to create additional financial security along with a job. If an individual can successfully create multiple income sources, the main job can become a less significant priority.
Fighting inflation with passive income
Royal (2022) in their article mentions the following passive income ideas along with others that might be incredibly useful. Firstly, selling services based on the skills of an individual. These services would include writing e-books, selling photographs online, producing videos online for clients, etc. Secondly, create a blog or YouTube channel. Finally, sponsored posts on social media. Shopify (2022) also identifies a few additional income sources that would be useful to fight against inflation.
Firstly, renting out unused space could be on the digital platform Airbnb or through conventional methods such as posting an ad. Secondly, selling designs online. Design websites such as 99designs, ThemeForest, or Creative Market can be potential services to sell digital designs online.
The gig economy
Other additional income ideas include participating in the gig economy which refers to services such as Uber or Door Dash, renting out a vehicle, or buying for cheap and selling for a higher price using the e-Commerce platforms Alibaba, eBay, and Amazon. When it comes to the final point, people can buy items from another one of the prior mentioned platforms or buy from a physical location and resell the items using one of the e-Commerce platforms.
Using the prior mentioned income sources people can save a considerable amount of money for future uses. As mentioned in the introduction due to inflation money saved becomes increasingly useless over time. Therefore, people can generate the most value for their hard-earned money by investing.
Fighting inflation through Investing
Another key method of fighting inflation is investing. Davis and Yochim (2022) on NerdWallet mention the following investments, among others. The investments include fixed deposits (Certificates of deposit in the US), mutual funds, index funds, dividend stocks, individual stocks, real estate, and alternative investments such as cryptocurrencies. Shopify (2022) also suggests buying a rental property as an investment in the article regarding passive income ideas. The following section will elaborate further on a few of the investment strategies mentioned above.
Firstly, buying a rental property has two main advantages which are the value it holds as a stable income source (which can be disrupted by several factors such as harmful tenants), and its value in the resale market. Secondly, dividend stocks and individual stocks, both are potentially good investments as they could increase in value over time. The added advantage of dividend stocks is they generate additional incomes for the investors.
Index funds
Thirdly, index funds, using this method investors can simultaneously have ownership of many companies represented by the index fund. Examples of index funds according to (Investor.gov) are the S&P 500 index, the Russel 2000 index, and the Wilshire 5000 total market index. Fourthly, Mutual funds serve a similar purpose by allowing to indirectly invest in many companies, but these funds are private companies themselves which utilize money from investors of their firm to invest in publicly held companies.
An Example of a mutual fund according to (Wade, 2020) is the Vanguard S&P 500 fund. Finally, Fixed Deposits (Certificates of Deposit in the US), this is a type of savings account where people can deposit cash for a certain time and annual interest is added to the deposit. The main difference between an FD or CD and a standard savings account is that in the case of the FD or CD the customer cannot withdraw the deposit until the official duration ends, whereas a customer with only a standard savings account can withdraw savings at any time. Examples of Cryptocurrencies and alternative investments, which were also mentioned in the article by Davis and Yochim (2022), include Bitcoin, Ethereum, and Non-Fungible Tokens (NFT).
Conclusion
In conclusion, inflation is an economic phenomenon whereby people’s savings become increasingly less valuable over time. In this article, We established the definition of inflation according to the International Monetary Fund and further elaborated on the topic. This article takes you through the key methods of fighting inflation which also discusses the important connection between developing multiple income streams, saving, and investing. Furthermore, strategies for having multiple income streams and investing are discussed in depth in this article. The strategies mentioned in this article have significant potential in decreasing the impact inflation can have on an average person taking part in the economy.
This article was written by Senura: LinkedIn, Instagram, Medium, Twitter
Sources
https://www.bankrate.com/investing/passive-income-ideas/amp/
https://www.shopify.com/blog/passive-income-ideas
https://www.nerdwallet.com/article/investing/the-best-investments-right-now
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