Money Talks: Tips on how to beat inflation

You must be feeling the heat lately from our economic weather. It has become hot, too hot for most Kenyans to handle. This heat is what is called inflation. It is the bane of our existence. What is unsettling Kenyans the more is that we don’t know if – or when – there will be respite soon.

Inflation is the change in the prices of goods and services that regular consumer households like you and I buy. It is measured every year, month by month. It is measured as a percentile using some complex economic computations.

Prices can either go up or go down – this change is what we fix our eyes on.

I have crunched some numbers from the Kenya Bureau of Statistics. The overall year-on-year annual inflation rate in May 2022 was 7.1 per cent. In May 2021, it was 5.87 per cent.

What this means for you, dear Kenyan consumer, is that you are spending more money to buy the exact items that you would have bought a year ago. You go into a supermarket to do the monthly shopping for your family of five – you, your partner, your two kids and the house help.

In May 2021, you would spend Sh20,000 and it would take you until the next month. With the heat from inflation, you are now spending about Sh25,000.

Inflation does not just dictate your expenditure; it also dictates your cost of living. Cost of living is how you choose to live in this town. The rent of your neighbourhood, the fuel and maintenance for your car, the food that ends up on your plate, the clothes on your back, your choice of phone, where you drink and dine, where you school your kids…These are your personal choices as an individual.

Inflation beats down on everyone living in the country. You don’t have a say on this rate of inflation but you have a say on your cost of living.

Here is my suggested response to beating inflation. The immediate response is to adjust your cost of living. Reassess your lifestyle choices so that your money can run more miles – live on a smaller budget.

Start by cutting out non-essential expenditure from your personal budget. This includes eating out, a night on the town, unnecessary shopping for your wardrobe, excessive personal grooming, thoughtlessly moving about in taxis, going on unplanned holidays.

You can also make some smart choices: If you drive, leave your car at home sometimes and take public transport. If you are hosting, insist that your guests bring their own liquor and host with potluck. Instead of exercising in the gym, run outdoors. Do your shopping wholesale, in bulk and once a month, instead of an on-demand piecemeal basis.

Monitor how you use your water, electricity and gas at home. Are people taking long hot showers, three times a day? And who is this who keeps baking cakes?

Only subscribe to entertainment you must consume. Can you do away with Netflix for the next few months? Perhaps cancel that subscription to National Geographic magazine?

The long-term response to beating inflation is to boost your income. That is, your salary income, your profits income and your investment income. Cumulatively boost them by the same rate of inflation, plus an extra percentile to keep you ahead of the economy.

The overall year-on-year increase in inflation from May 2021 to May 2022 was 21 per cent. An extra 2 per cent to keep you ahead will therefore be 23 per cent.

Suppose your total monthly income is Sh150,000: Salary income of Sh100,000. Profits income of Sh30,000. Investment income of Sh20,000.

Have a personal goal to increase this income by 23 per cent to Sh185,000. To increase your salary income, ask your boss for a pay rise or hunt for another better-paying job. To increase the profits income from your business, get more clients, push more volumes and increase your rates.

To increase your investment income, use the increase from your salary and profits income to invest wider and smarter.

@_craftit,  [email protected]   Florence Bett-Kinyatti is a certified accountant and former financial auditor. She is also the author of the book titled ‘Should I? Your questions about money.’