Inflation in developed markets has hit record highs, driven by energy prices, supply chain disruptions and food prices.
US inflation, for instance, has soared to a 40-year high of 7.9 per cent in the past year, propelled by the rising cost of petrol, food and housing.
Rising inflation rates around the world have not had as much of an effect on Dubai as on other markets, Helal Al Marri, director general of Dubai’s Department of Economy and Tourism, said this month.
The emirate maintains a diversified supply chain, continues to attract talent from around the world and ranks favourably on cost of living indexes.
However, inflation in the UAE is forecast to rise to 2.2 per cent this year from 0.6 per cent in 2021, according to the International Monetary Fund.
“There are both long and short-term effects of inflation,” says David MacLaren, a partner at Abacus Financial Consultants.
“While inflation can have an adverse effect on your financial future, it can also make it difficult to meet your financial obligations right now. That’s why it’s important to have steps in place to deal with inflation so you don’t end up going over your budget or, worse, relying on credit cards and accumulating debt.”
The Central Bank of the UAE increased its benchmark interest rate in line with the US Federal Reserve’s decision to raise rates on March 16 to rein-in inflation.
“Ideally individuals should save 25 per cent to 30 per cent of their income. A family should always have an emergency fund equivalent to six months of their salary to protect themselves against any extreme price moves.”
2. Prioritise spending
Sometimes, paying less for the items you buy is not enough, you may need to remove things from your budget and prioritise the items that are necessary, says Chris Davies, a chartered financial planner at The Fry Group.
Give up certain activities and expenditures that are “nice-to-haves” rather than necessary expenditure, he says.
“You can work out at the gym in your apartment complex and cancel your gym membership. Stretch the length of time between hair appointments by a week or two. Save on petrol by taking advantage of the metro a few times a week or carpool,” Mr MacLaren says.
“Try cutting back on your daily coffee habit or make your own at home and bring it to work in a travel mug. Don’t buy extra treats.”
3. Look for cheaper alternatives
As prices rise, your previous purchases may no longer be possible within your existing budget, Mr Davies says.
Consider how to reduce the cost of these by either looking for different brands or shops or buying in bulk for cost savings.
“Try less expensive or store brand foods, cleaning products and hair products. You may discover that there isn’t a huge difference in the quality or taste,” Mr MacLaren says.
“You may also want to switch to a less expensive store to save.”
It is also worth exploring free and cheap activities to do.
Your friends could also be trying to save money, so you might choose to stay in and watch a movie instead of going out to one, Mr MacLaren says.
Instead of eating out, inviting friends to a dinner party at home or hosting a games night are budget-friendly alternatives, he says.
4. Invest to beat future inflation>/b>
Any good budget will give you a buffer to save, which will not only allow you to set money aside for investments but also let you absorb some price rises without having to change your spending habits, Mr Davies says.
Continue to save and invest your money, especially for retirement, Mr MacLaren says.
“You do not have control over economic conditions, but you do have control over your spending and saving habits.'
5. Pay down debt>/b>
When inflation is high, interest rates are generally increased to control the economy.
If you have any floating or variable rate debt, you need to be aware of the potential impact of an increasing interest rate environment on your budget and focus on paying down debt before that becomes an issue, Mr Davies says.Source: