The inflation rate refers to the annual rate of increase of the consumer price index. To illustrate it simply, if an item purchased today for RM1 is purchased again one year later for RM1.03, the inflation rate is 3%.

Every country strives for a low inflation rate, and Malaysia’s headline inflation is forecast to remain manageable this year, averaging between 2.2% and 3.2% compared with 2.5% last year.

In general, inflationary pressures go hand-in-hand with a country’s economic growth. Inflation can occur when there is too much money in the system, causing the price of products to rise.

Still, its effects are negated if a household’s two key sources of wealth – asset and income appreciation – increase at a rate equal to or greater than inflation.

Understanding the rate of price increases over time could help with one’s personal money management. Here are a few tips on how to fight against inflation.

1. Find lower prices

Identify recurring charges within your household every month. Streaming services, insurance premiums, internet bills, phone plans, credit card fees, gym memberships – could any of these be maintained, but at a cheaper price?

You can get a better bargain on practically anything to offset increased prices. Enquire about programmes or discounts you might be eligible for, or hunt around for alternative service providers who might have cheaper rates.

Find out whether certain services have partnership programmes with certain credit cards, where you can get a reduction if you pay with that card. That said:

2. Focus on managing debt

In times of financial crisis, people tend to borrow money through new lines of credit. It can be tempting during this time to open low-interest – or even no-interest – credit cards.

Rather than go down this route, work to consolidate your credit, so you can have a much clearer picture of how much debt you actually have. It might be easier to negotiate payment terms with your bank if you are serious about tackling your debt.

Note, however, that this strategy only works if your liabilities are of a manageable amount. If your debt has reached a difficult size, the wisest option might be to engage a licensed financial planner to craft a management plan.

3. Let go of secondary vehicles

During inflation, it’s common to see production lines and supply chains slow down due to shortages in various sectors. Owing to this, the demand for second-hand vehicles might skyrocket.

The time might be right to sell off any secondary vehicle you no longer need. Contributing to the second-hand market could fetch you a nice premium, especially during inflation, while saving you on unnecessary maintenance costs.

It could also be beneficial to assess your primary vehicle and consider whether you should let go of it, too. Whether you completely rely on e-hailing services or public transport, or choose to change to a lower-maintenance vehicle, the idea is worth some serious consideration if the market is able to fetch you a good price.

4. Diversify your portfolio

Consider compiling a collection of different investments to reduce your overall risk profile. This could be in the form of owning stocks in industries outside of your usual preference, or getting into commodities, real estate, or alternative options.

A new option for investors is cryptocurrency like Bitcoin, where its restricted quantity should theoretically safeguard it from inflation. However, whether it will be a good inflation hedge in the long run is still up in the air.

5. Short-term bonds

Maintaining cash in a fixed-deposit or high-interest savings account is akin to keeping money in short-term bonds. Your funds are secure and easily accessible. If rising inflation leads to increased interest rates, short-term bonds will fare better than long-term ones.

Stick with short- to intermediate-term options as they will be less affected if interest rates rise rapidly, and keep away from anything long-term. Short-term bonds can also be reinvested at greater interest rates as they mature.

6. Invest in stocks

Despite a general lack of faith in stocks, investing in some can be an effective method for fighting inflation. Look for businesses with the highest profit margins and, in general, the lowest cost of production, such as those in commodities or healthcare.

Never underestimate the importance of dividends during inflationary years, as they boost a portfolio’s overall performance.

7. Invest in real estate

Real estate investments can be in the form of home ownership, or undertaken through Real Estate Investment Trusts (REITs) or mutual funds that invest in REITs. Historically, real estate fares well during periods of increased inflation.

However, the post-pandemic era may alter how real estate reacts to greater inflation. In any case, property ownership is usually a good thing, even during inflation, as the value of the home will rise along with inflation rates.

Landlords could raise their rent, increasing their income and keeping it in line with growing inflation. Sellers could be looking at significant gains if supply is low and demand is high.

If you have invested in a property as a leveraged asset, then you might be able to enjoy a steady rise in value while paying the same fixed rates. This could boost your return on investment, as long as your financing rate does not increase alongside the inflation rate.

8. Invest in yourself

Investing in yourself will help you be prepared for an uncertain financial future. This starts with good education, and continues with skills maintenance and upskilling.

Staying on top of a job market’s evolving needs could help you not only inflation-proof your income but also recession-proof your career.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.