Inflation is a global phenomenon. It affects almost all the countries of the world including Singapore. Most countries experience both core inflation and lifestyle inflation.
Core inflation can be described as the changes that occur in the prices of goods and services. In Singapore, core inflation excludes the prices of private transport by road and accommodation.
Lifestyle inflation occurs when people spend more because they are accustomed to a high standard of living. For example, if you are in the habit of going on vacation overseas every year, then you may want continue in this kind of lifestyle even after retirement. Research has shown that 80% of Singaporeans still want to enjoy the same lifestyle even after retirement. This is not advisable because the amount that they will receive during retirement will probably be substantially lower than their previous income.
There are several effects of core inflation and some of these are described below.
Core inflation will cause the value of the money you hold today to become devalued over a number of years. This means that any savings that you have put aside will be of lesser value in a few years’ time. This includes any contributions that you have made towards your CPF account. It will be advisable for you to scale up your CPF contributions so that you are able to counter the effect of core inflation.
Unfortunately, core inflation tends to lead to more inflation. This is because many people will want to spend their money rather than save it once they realise that the value of this money is going down. This increase in spending will create an increase in demand for goods and services. This will in turn push up the prices of commodities, hence causing more inflation. You should avoid any increase in spending.
When core inflation rises, the central banks of most countries intervene by raising the interest rates of loans. Once interest rates of loans go up, people will find it more difficult to borrow money. This will in turn reduce the amount of cash circulating in the economy and as a result, the prices of goods and services will go down. However, the central bank will also be keen to avoid creating the opposite effect of deflation. Therefore, they will keep the interest rates at a reasonable level where they can maintain the rate of inflation at the target percentage.
Core inflation may cause an increase in economic growth in the short term. This is because many people will prefer to invest their money in profitable ventures, rather than allow it lose value in the bank. There will be more money invested in areas like stocks as well as other lucrative investments. You can also choose to contribute towards this boost in economic growth by investing your money in places where it will give you a good return.
Another effect of core inflation is that the prices of valuable assets such as property and vehicles will tend to rise in a few years. Therefore, many Singaporeans may choose to purchase these assets immediately so as to avoid paying the higher price for the same asset in the future.
Core inflation may create a decrease in savings. This is because many Singaporeans may prefer to remove their money from savings accounts once they realise that the value of the money is decreasing year after year. Some may choose to invest it wisely while others may decide to spend it on assets and other commodities.
Core inflation will require employers to pay their employees higher salaries. This may cause employers to stop hiring employees on a regular basis. In some cases, employers may even be forced to scale down the number of employees so that they can create a more reasonable budget. This means that opportunities for you to get employment in Singapore may decrease if there is a very high rate of inflation.
As the rate of core inflation rises in Singapore, it is important for you to seek advice from financial experts on how handle the above effects so that you are able to rise above it.
Lifestyle inflation is something that you can control individually. It is unlike core inflation which you cannot influence directly. There are several ways in which you can avoid lifestyle inflation. Some of these ways are described below.
Be conscious of where you spend your money. Go through your list of expenses and point out the luxurious items that are totally unnecessary. Once you have picked out these items, begin to cut down how much you spend on them. This will help you to maintain a manageable lifestyle and you will not give in to the temptation to adopt an expensive lifestyle even during your retirement.
If you happen to receive any increments in your salary or income, it is advisable for you to channel these amounts to a savings account which is not easy for you to access. This will ensure that you retain the same lifestyle that you had before the increment. You will also be able to scale up on your savings so that at the point of retirement, you will have accumulated enough funds to live an average life in spite of the inflation rate.
If you have a group of friends who are used to a very high standard of living, it will be wise for you to avoid their company. This will help you to drop certain expensive habits such as dining out in expensive restaurants or buying luxurious items. It is advisable for you to spend time with those who live a simple lifestyle because you need to learn how to live simply and wisely. This will reduce the possibility of you becoming a victim of lifestyle inflation.
Having access to several credit cards creates a great temptation to overspend. If you want to avoid lifestyle inflation, it is wise for you to stop using some of your credit cards. This will prevent overspending and you will learn how to live on a leaner budget.
Instead of spending your money on luxurious items, it will be more profitable for you to invest your money wisely. The profits that you earn from these investments will be a great asset to you in your retirement years. For example, if you have a habit of going on vacation every year, then you can skip the holiday and channel the money into a profitable venture.
One of the best ways of avoiding lifestyle inflation is learning to be content with the basic necessities of life. You will learn to be happy with simple things and this will help you to avoid the pressure of wanting to have an expensive lifestyle.
In conclusion, inflation is part of living. However, you can learn to counter the effects of both core inflation and lifestyle inflation by making wise financial decisions and changing some of your lifestyle habits.
If you’re tempted on getting a gym membership, here’s the number one mistake you can make. You’re having a casual conversation with your co-workers or..
There is no doubt that anyone aspiring to be an entrepreneur has heard about the pitfalls that others who have gone before have faced. Many..
An iPhone has been designed with a lot of powerful features to make life easier for the user. Unfortunately, most people who own have no..
The importance of personal finance management is undisputed, no matter who you are. If you can manage your budget proficiently, you know how much money..
Investing in the Singapore Exchange is a worthwhile venture for . However, before you begin to buy and sell securities on the Singapore Exchange, you..
When many business executives think of team building, they picture their employees playing games on company hours and money. Some even think that all the..
Ecommerce comprises of electronic platforms that are used to facilitate business transactions. Millions of people around the world log into virtual markets on the internet..
A marketing budget that is properly defined is essential for managing and measuring what has been invested into retaining existing customers and acquiring new ones...
Banking is a business that is distinct from a business that solely deals with money lending. Money lenders typically advance their own money while banks..
What is Financial Freedom? Financial freedom means different things to different people. For many Singaporeans, financial freedom means having all their financial needs met and..
Most people set out to start their businesses with excitement, but many of them, even those who plan well and save to start up, often..
Many Singaporeans consider the option of taking a bank loan when they need funding for various projects. However, taking a bank loan is not as..
The total debt servicing ratio was introduced in Singapore to rescue borrowers from the nightmare of taking on too much debt and committing their entire..
Advertising was extremely expensive at some point in its history, particularly ten to twenty years ago when companies relied mainly on A TV or magazine..
As a beginner in investing, the idea of putting money into an investment you are considering may be intimidating. Usually this comes from lack of..
Singapore is known for its great food, great weather, friendly residents and being super clean. It is also known for its thriving economy. In the..
Looking for a job can sometimes be challenging. It is important that you take note of the tips that could help you to emerge successful..
Cashless payment methods have been the trend in recent times. Singapore is among the top nations worldwide who are going cashless. In fact, a few..
Applying for your first credit card usually comes with a sense of excitement and apprehension. You'll have the opportunity to make your purchases conveniently and..
Refinancing your home refers to the process of replacing the original mortgage with a new one. Refinancing serves the purpose of enabling borrowers to more..
Cutting down on expenditure has always been associated with making major lifestyle changes. However, you don't always have to make a big change in your..
Taking a business loan in Singapore should never be seen as a sign of weakness in a company. This type of loan is also not..
For Singaporeans who are considering getting cards or already have them and want to know the best ways to avoid debt, it is important to..