The recent increase in international oil prices have pushed the price of essential goods up. This in turn has put pressure on inflation.
My friend Dennis told me recently that his rent had doubled in a period of six months. In addition, his spending on transport and food plus a host of other essentials have also risen significantly.
What troubles him is his income is not keeping pace with the lofty prices, meaning he now has less money available for spending.
The question now is how to mitigate the impact of rising inflation in order to avoid being drawn into debt. There is a feeling that low income earners feel the impact of inflation more than high income earners.
In their 2000 research titled ‘Choice, Chance and Wealth Dispersion at Retirement’, Ventis and Wises found a wide range in how much people at the same income levels were able to save for retirement.
The study pointed out that it wasn’t just the higher income individuals who managed to save the most. They showed that people in the lowest income groups were able to save more than some of their middle-income peers.
The most important way to begin is by examining the roots of over spending. When you recognise these you can easily decide on which expenses to reduce. It requires you to review your budget.
You need to spend less than you earn which means more savings as this is the basis of building individual wealth. There is also need to monitor economic trend so as to adjust accordingly.
At some point you will be required to identify more income raising strategies, having additional family members go to work, and working more overtime for those who are compensated for it.
Dennis told me he shifted from the consumption of normal and luxurious goods to the consumption of inferior goods. He hangs out in cheap places and tries to buy from the cheapest markets.
This is very good because inferiority of the goods in question, is just a fact arising from affordability rather than a statement about the quality of the good. Lowering your consumption, therefore, is the best response to price increases.