Planning finances does not only include income, expenses and savings. There are many factors that can influence the value of assets owned and cannot be ignored. For example, for property assets or houses, by building public facilities in the surrounding area, the value of the asset can increase. Another example, fluctuations in currency exchange rates can change the amount of savings in foreign currency.
A factor that is quite influential and cannot be avoided on the value of money is inflation. Inflation should be taken into account when making financial planning, including household financial planning. Inflation causes the prices of consumer goods and services to increase so that the expenditure budget will also increase. An increase in the spending budget can reduce the routine budget for saving and has the potential to disrupt future financial plans. Without taking inflation into account, family financial planning may not achieve previously set goals.
What is Inflation?
Bank Indonesia defines inflation as a general and continuous increase in the prices of goods and services over a certain period of time. The calculations were carried out by the Central Statistics Agency (BPS) for seven expenditure groups, namely foodstuffs, prepared food/drinks/tobacco, housing, clothing, health, education and sports, and transportation and communications. This grouping data was obtained through the Cost of Living Survey (SBH).
There are several causes of inflation, namely;
An increase in supply (cost push inflation) which occurs due to depreciation of the exchange rate, an increase in production costs, the impact of inflation from other countries, especially trading partners, an increase in commodity prices regulated by the government (administered prices), and a sudden decrease in supply.
An increase in demand (demand pull inflation) occurs because total demand exceeds the capacity of the economy, for example by hoarding certain goods.
A combination of increased demand and supply.
Inflation expectations are when people anticipate future changes and try to adapt. For example, the price of goods increases before the holidays even though there is sufficient stock.
Increase in the amount of money in circulation. When the amount of money increases without any change in the quantity of goods, the value of money will fall and the price of goods will rise.
The higher inflation, the higher the prices of goods and services on the market so that consumer purchasing power weakens. BPS noted that Indonesia’s inflation rate from January to June 2022 was 3.19% or 4.35% when compared to June 2021 data. Even though this is Indonesia’s highest figure since 2015, this figure is said to be reasonable compared to other countries, but it still has an impact on society.
Dealing with the Impact of Inflation
The most pronounced impact of inflation is the increase in prices of basic necessities. Expenditure plans can balloon especially with rising food and fuel prices. That way, what must be done immediately is to review the household budget plan to see whether it is still relevant to current conditions.
Adjustments also need to be made to leisure posts such as hanging out at a restaurant or coffee shop, watching a movie or traveling. So that budget savings can be reduced in costs or insensitivity without the need to eliminate posts.
To minimize the impact of inflation, you can do the following things;
Start saving
Record every expense and determine which budget can be reduced because it is not a priority. Increase the planned spending figures slightly to accommodate the possibility of price increases in the future. Those of you who already have insurance need to re-evaluate your policy. If your current policy exceeds your needs, contact your agent to change the type of protection that better suits your needs. Most importantly, always measure your financial condition and adjust your lifestyle.
Increase financial understanding
Learning about finance doesn’t have to go through formal school or courses, currently there is a lot of material spread on social media that you should study to help you manage your household finances. Keeping up with developments in the national inflation rate or understanding how to invest healthily is quite important for the purposes of managing a household. Basic education about finances can protect you from the risks of unpredictable economic changes.
Make a backup plan
If the savings option is not suitable for your sustainable plans, it’s time to make other plans, for example by looking for additional income by opening a business or looking for a new job with a higher income. You can also postpone purchasing assets that have high value.
Invest
Instead of saving the same as saving money with monthly deductions, investing in stocks and bonds can provide more profits in the long term. Those of you who are still beginners can start with low-risk investments such as mutual funds. Deposits are also an attractive option because the interest is higher than savings. Also reserve emergency funds for urgent needs that come up suddenly.
Using Insurance
Many people think that insurance can prevent risks, even though insurance is protection from the financial impacts when risks occur. When a risk occurs, insurance provides guarantees so that you suffer the minimum financial impact as possible and can still continue your life afterwards. Having protection will really help you when an emergency occurs, especially when inflation occurs. Manulife Indonesia provides a variety of insurance products to suit your needs, such as Manulife Essential Assurance life insurance whose cash value guarantee is not influenced by market fluctuations and MiUltimate HealthCare which is able to cover even the cost of treatment abroad.
Inflation cannot always be predicted so you need to prepare yourself to face it. When planning your finances, remember that the future is full of uncertainty and inflation. Therefore, making a mature financial plan is a good decision for the future.
