Economies tend to perform differently at different times of the year. There are times when supply is more than demand, and demand is more than supply. Either situation negatively affects the economy.
An economy refers to the production and consumption of services and goods of a given state; it also entails money supply. One of the ways the imbalance of demand and supply affects economies is by causing inflation. Inflation is characterized by an increase in the price of goods and services. In return, inflation reduces the purchasing value of money. Therefore, you’ll pay more for fewer goods and services.
In such situations, you’ll find most citizens unable to cater to their needs should they continue with the same spending habits before the inflation. Due to this, most of the population will get into debt to cater to their everyday expenses.
From a financial perspective, debt isn’t recommended. It more or less reduces your disposable income since you’ll reduce the money in your pockets when paying. This is without forgetting that most debts come with interest rates. During inflation, these interest rates can be quite high. Therefore, one of the solutions to avail more money during inflation is to avoid debt.
Suppose you live in Canada. How will you avoid debt? This article highlights tips you can adopt.
- Creating A Budget
Budgets play a vital role in your financial spending by enabling you to be accountable for your money. Therefore, having one is one of the ways of ensuring you avoid debt. How do you create one?
During the current Canada inflation, your budget should mainly have your needs, not luxuries. It’d help to list all your utilities such as rent, electricity and water bills, and food. These are the items you can’t do without and must pay for each month. Next, allocate maximum expenditure on each need based on your current income. With the allocation, in no case should your budget exceed your income.
With the budget in place, you’ll have a limit as to what you can spend and how much you’ll spend on what. In this way, you won’t overspend.
- Living Within Your Means
One of the mistakes a majority of the population makes is living a life they can’t afford for various reasons. This isn’t always commendable since it often leads to overspending and debt. Therefore, it’s important to live within your means.
Consider assessing your current expenditure and creating a list of these expenses. Identify those that are necessary and those you can do without. It’d help to have two columns, one for wants and another for luxuries. It’s advisable to do away with luxuries such as daily chauffeur services until the economy stabilizes. For the wants such as subscriptions, you can downgrade to a cheaper package to avail more money to meet your daily needs.
By living within your means, you won’t find it necessary to live a lifestyle you can’t afford, driving you into debt. You want to stay away from debt as much as possible. The secret is being content with your income and lifestyle.
- Creating An Emergency Fund
One of the things that can drive you into debt is emergencies you hadn’t planned. These emergencies become an issue when they need financing and you hadn’t budgeted for them. Due to their sudden existence, most people tend to get into debt to cater to them, which isn’t commendable. This is because once in debt during inflation, interest rates are likely to be high, which is disadvantageous.
Consider setting up an emergency fund to avoid debt due to emergencies. Here, you’ll allocate some of your income to this fund. It’ll cater to your emergencies, should they occur. You won’t need to offset your budget to cater to them, eliminating debt. Set up this fund into an interest-earning account. The interests will cater to the inflation, more or less increasing your money’s value.
In most situations, you can’t control inflation as a citizen. You can only do so much, but you can learn how to adapt to it and avail more money for yourself. The discussion above has outlined that debt is one of the repercussions of inflation. However, you don’t need to fall victim to the same trend and become a statistic. This article divulges ways you can avoid debt. As a rule of thumb, always make an informed decision and don’t decide based on your emotions. Consider implementing the tips, and you’ll cater to all your needs without fail, despite Canada’s high inflation.