7 Ways to Beat Inflation and Safeguard Your Money

Like it or not, inflation is a global phenomenon and is here to stay. If you want to stay on top of it, here are some ways you can manage your money and hedge inflation.

Gone were the days when a plate of chicken rice used to be a mere S$1.50. Nowadays, your standard plate of Hainanese goodness costs around S$3.50, with some vendors even charging up to S$7. The culprit of this? Inflation. The word that puts every individual trying to up their finance game on edge.

According to The Business Times, Singapore experienced a record-high inflation rate of 3.8% in November 2021, and, on average, 1%-2% per year. Though we can’t do anything to stop it, we can manage our money and make wiser decisions about our finances to beat inflation.

In doubt? Here are seven ways you can make your money work harder for you.

1. Rent your house

Though not many people have an extra house or room they can readily rent out, renting out your home is a good way to circumvent inflation. Since property prices are set according to market conditions, the rental that you’ll receive will also take inflation into account. As the years go by, rental rates will definitely increase along, especially if your property is situated in a good location near an MRT station or close to amenities.

However, if you want to profit from this, the value of your house has to increase way faster than inflation and the interest rate on your home loan, which comes close to about three to five percent at the very least.

Renting out your extra room or the entire house is a form of passive income that would usually not entail a large profit margin unless a new development is planned near your property, which will help to exponentially increase its value.

2. Get a retirement annuity plan

Though CPF LIFE grants every Singaporean retirement payouts once they reach the retirement age, you might find that the payouts are a lot lesser than what you envisioned for the kind of lifestyle that you’re planning to have. This is when a retirement annuity plan can complement the payouts from CPF LIFE to plug the gaps.

You basically pay your premiums now, either over a few years or as a single premium payment (if available), and you’ll be able to enjoy a monthly/yearly payout for the rest of your lifetime or for a fixed number of years, depending on the plan you choose. Returns are usually about 2% to 2.5% p.a.

3. Investing in mutual funds, stocks, ETFs

If you’ve got time to stay updated on financial news and analyse the market, then you can consider traditional investing in stocks, ETFs and mutual funds to beat inflation. 

Depending on your risk appetite and time horizon, you might be more comfortable investing in certain asset classes than others. If you’re risk-averse, mutual funds might be better for a more diversified portfolio; if you have an eye for market trends and a higher risk appetite, you might find individual stocks more appealing.

Regardless of which of these you choose, they are all very liquid and you can retrieve your funds anytime. The returns you earn can be used to counter inflation.

4. Fixed deposits

Fixed deposits or time deposits earn you guaranteed interest (which ranges from 0.1% up to 1.15%) for the money you deposit in the bank over a tenure. The money locked in the fixed deposit will earn interest during the tenure, with interest being paid out at regular intervals, often quarterly or annually. If you take out the funds before the tenure ends, you might potentially lose all the interest earned.

Because of this, fixed deposits are only suitable for those who have a larger sum of money to invest and don't require the illiquid cash for the tenure period. Usually, the longer the tenure you choose and the higher the amount you can commit, the higher the interest rates you can earn.

Depending on the interest rate, this can be a surefire way to beat inflation. Fixed deposits are also generally safe for risk-averse investors, and you’ll be glad to know that your deposits are insured by the Singapore Deposit Insurance Corporation (SDIC), for up to S$75,000.

5. Insurance savings plan

Slightly similar to an endowment plan, an insurance savings plan helps you to accumulate wealth. However, most savings plans don’t require you to pay a fixed monthly premium (though some do offer) and instead require a minimum deposit to start your account, usually from S$500 to S$2,000, while also offering insurance coverage.

The best part is that it offers high liquidity. Some plans allow you to freely make withdrawals after the end of two years (depending on each insurer) and take out your funds if you'd like, though withdrawals will affect your returns upon maturity. 

Depending on the insurer, returns may or may not be guaranteed, and usually range from 1% to 2.5% p.a. These insurance plans also usually only offer an attractive interest rate with an amount threshold, so any amount in your account after that limit will earn lower interest.

6. Cut down on investment fees

Yes, you read that right. Cutting down on investment fees will indirectly help you hedge inflation. Why? Because when you cut down on monthly fees, you will increase the expected returns on your investments. Reducing your fees can be seen as ‘guaranteed savings’ each month.

Imagine paying 0.5% instead of 1% of your total investments each month. Though that 0.5% difference may seem insignificant, it definitely adds up in helping you to reduce cost, and can have a significant impact on your investment returns over the long term.

Are you paying too much in platform fees? Maybe it’s time to switch over to another robo-advisor platform or delve into self-investing by creating your own portfolio.

7. Don't leave too much savings in a savings account

You probably already know this, but leaving too much savings in your savings account will only make your money lose value due to inflation. With the average inflation rate in Singapore at just above 2% since 2008, letting your savings earn a meagre interest rate of 0.05% will not help your money grow at all.

You should have at least three to sox months' worth of liquid emergency funds at hand. Of course, this is not a one-size-fits-all solution as everyone's financial situation is different. But having too much savings sitting idly in your bank account won't do you any favours.

If you are risk-averse and prefer to have your funds in a savings account, you should do your research and get one that promises higher interest rates to make your money work harder for you. If you manage to hit all categories, some savings accounts can give you up to 3% p.a.

Read these next:
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