Inflation has risen so high that if your incoming funds have not increased by 7% in the last year, you are losing money. This spike is a massive hurdle for both businesses and consumers. But by making just a few preemptive decisions, like opening a cashback account or carefully adjusting your business’s prices and payroll, you can work to counter inflation.
What Is Causing High Inflation Rates?
Inflation is tricky, but you must understand why it happens to combat it. Inflation occurs when the overall value of money goes up due to a widespread increase in pricing. Customers are willing to pay more money for the same product with higher demand, ultimately causing the US dollar to diminish in value.
In the spring of 2020, there was a substantial shortage of employees and goods due to the burgeoning pandemic. This shortage caused increased demands, which directly led to increased prices. Today, inflation continues to rise from these events.
How Inflation Impacts Your Bank Account
Inflation and increased prices might sound good from a business standpoint. However, it is quite the opposite. Inflation can impact your bank account in several ways:
● Higher prices mean fewer customers. The more resources cost, the more you charge for your products. And the higher your prices are, the less your customers are willing to buy, especially as they manage their personal financial hardships.
● Loans are hard to come by. Banks become a lot more stingy during periods of high inflation when granting a loan. Not receiving an expected loan can be challenging if your business relies on that money.
● Investments postponed for urgent matters. It’s often necessary to put off large projects like business remodeling, damage repairs, or natural disaster reconstruction. People are more concerned about paying off debt and don’t want to create more.
● Pay cuts cause employee shortages. Businesses might consider cutting employee pay to save money. However, this might cause employees to walk out.
Tips to Counter Inflation and Get the Most for Your Dollars
The best way to counter inflation and get the most for every dollar you spend is to make money by spending it. Yes, this sounds like a contradiction, but there are some simple ways you can spend money smarter.
Invest in Funds
The value of your money decreases the longer it sits in a bank account. What might’ve bought you a burger a year ago may only buy you a side of fries today. In addition, some accounts collect interest from your funds, diminishing the total value even more.
By investing your money, you can increase its overall value with time. Mutual or index funds are great options. These traditionally low-risk investments grow at steady, predictable rates.
Invest in Appreciating Assets
You can also invest your money in an appreciating asset. Appreciating assets are goods that consistently increase in value over time. One of the best examples is real estate.
By purchasing something like a house, you are nearly ensuring that when you sell, you will profit. Of course, there are more factors to consider here, like upkeep, renovation, and sales.
Apply for Cashback Cards
If you are not prepared to invest thousands of dollars in a fund or appreciating asset, another great option is applying for a cashback credit card or rewards card. These types of accounts offer you cash rewards based on how you spend your money.
By purchasing anything from new inventory to your weekly gas trips, you can see extra cash flow into your bank account. Consider applying for an unlimited cashback debit card from Nearside when saving money.
How to Save Money as a Small Business
Saving money during inflation, especially as a small business, is another excellent way to counter inflation. But it can be tricky. Here are a few ways to help your business withstand inflation by saving money.
1. Purchase Preemptively
During inflation spikes, the prices of goods only continue to increase. Because of this, preemptively purchasing any goods your business relies on before they become even more pricey can save you money in the long run.
Keep in mind the common goods that are always high in demand and will always experience price spikes. For example, gas and food are everyday necessities that customers are willing to purchase at nearly any price.
2. Slowly Increase Prices
Increasing prices is often necessary to continue profiting during inflation. However, spiking too much at once will drive away customers. By raising in small increments over a more extended time, customers are less likely to notice the difference, even if the overall increase is still substantial.
Creating a pricing plan can help you manage this process. Decide on the percentage you will increase per week or month and carefully monitor how sales and profits change. Then, adjust your increase rate accordingly.
3. Collect Debts
If you offer any payment plans or loans to customers, promptly collect the funds. Your customers might also be struggling financially and may try to avoid payments. However, remaining stern and collecting any owed money is critical.
It is also essential to stick to a strict timeline when collecting debts. Decide upfront how long customers have to complete payments and consider charging interest. Have a plan in place when customers do not meet deadlines.
4. Streamline Your Team
Efficiency is vital when saving money. Cut out unnecessary spending by streamlining your overall work process and stopping time-wasting activities. You might accomplish this by letting go of non-critical team members, cutting hours, canceling subscriptions, and making more use of the resources you have.
Consider that your current employees can only continue making the equivalent value of money as last year if you pay them more. Increasing pay can be challenging, but reducing waste can help cover these costs.
Takeaways
Inflation is tough on everyone, but there are ways you can counteract it. Cut extraneous spending, save money, streamline your business, and stay ahead of inflation. Most importantly, take preemptive measures and place your money in a place that generates value rather than diminishes it, like a cashback account, investment fund, or appreciating asset.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
