“Do not save what is left after spending; instead, spend what is left after saving.”
―Warren Buffett

Introduction

It seems like there is no escape from inflation. It affects our lives, and we can feel it in the market, at home and every aspect of our lives. In non-technical terms, inflation is what causes the money in our pockets to lose its value. Your money would lose more, especially if you are a saver. We all heard sayings praising saving your money. Well, yes, it is not a bad idea or is it? See, I used to put my money aside; where? In the bank, of course. It was keeping my money safe and secure. But did it make any sense? No! Not at all.

Inflation in plain English

Inflation is the general increase of prices for goods and services in an economy over a while. Inflation indicates that your money buys less than it used to. For example, if you buy a loaf of bread for $1 today and tomorrow, it costs $1.25, which means inflation has raised the price of bread by 25% overnight.

The most common measure of inflation is the Consumer Price Index. The CPI measures changes in prices paid by urban consumers from one year to another and is based on personal consumption expenditures (PCE), not on monetary value or GDP changes.

How can you protect yourself from inflation?

So far, we all know that inflation is a real threat to your hard-earned money. But what can you do about it?

The best way to protect yourself from inflation is to make money you save work for you. When I read Robert Kiyosaki, I came up with the term "money working for you". His Rich Dad Poor book is worth reading as it teaches a lot.

Saving is simple: just put your money in a safe place and don't touch it until it is ready to invest! I tend to deposit sums to my brokerage account every month and have developed a habit of sending some more every time I do not spend on something I do not need.

The second part—investing—is a bit more involved, but I will explain how in just a moment.

Before going any further, let me note this; this article is not an investment recommendation, just my experiences with the topic.

Investing is essential; you can invest in many different things: stocks, bonds, real estate, and more. But for this article, I will focus only on stock market investing with some experiences I have.

Possibly you have watched or read something like "if you had bought this stock (or that stock), you would be sitting on millions", right?

I have heard and read similar things but somehow never acted on them.

I was a loyal saver. My bank used to reward me for that(!) You can see my years of saving my money.

As you will see, I started to get paid much less for being a saver even though I have managed to put more of my hard-earned cash in the bank. Of course, there are many factors that banks decreased their rates to almost zero per cent :)

Anyone around me emphasised that investing was risky; yes, there is a risk. But, I also learned I could manage that risk if I played carefully while training. So, I decided to invest in stocks.

Let's be honest. If you bought AAPL (Apple) on 20 September 2021 for $148.19, your money would have increased by 20 August 2022 by around %15.74. Not bad, given the money you'd get from a bank.

Now let's consider inflation. Your money would lose its value, say %10, because of inflation; therefore, you would have shielded it and saved around ~%5.74. (See where I got my numbers: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2022)

And, do not forget. APPL is a dividend payer! Not a huge one, but still, cash flow is cash flow. Cashflow investing is a scenario I have been working on for two years now. While I am building my investment, I also get paid each month, month over month. See my dividend payments chart. I tend to check it almost every day and plan my next moves.

In the end, the stock market might not be the safest place, but it might be an excellent place to keep your money safe from inflation and have your money work for you. Just remember, investing is not risky. Gambling is what makes investing risky. It would be best if you did your analysis and then invested. In the end, it is your hard-earned cash at stake.

I believe you can and should trust yourself rather than someone you don't know to manage your money. With new investing platforms, it's almost free to invest, but please be aware. Even if investing is free, there is a cost you have to pay. The cost is your training. If you are willing to pay this small price, then I do not see any reason for not investing and protecting your money from inflation.

How Inflation Affects Share Price

Yes, even share prices get their fair share 🙂 The price of goods and services rises due to inflation, and the company's earnings are reduced. Rising costs can also lead to layoffs or lower wages for employees, further hurting their ability to spend money which may hurt sales of products or services. Inflation can be dangerous if it continues at an unsustainable level over long periods.

One way to combat inflation is by investing your money - it does not have to be complicated.

As mentioned above, one way to combat inflation is by investing your money. Investing can do this in various ways, but it doesn't have to be complicated or intimidating. You can invest your money in stocks, or you could first as quickly invest in yourself by improving your skills and education on money and stocks.

You can always check my bank account returns from above if you think saving your money in the bank is a safe bet. Then you could go for a safe bet like S&P 500 or an ETF. As long as you keep your money working, it will yield better results than sitting in the bank account doing virtually nothing but losing its value.

Inflation has been an ongoing problem for decades, and the best way to protect yourself from it is not to wait for someone else to do something about it—it's up to each of us individually.

Conclusion

There are multiple ways to protect yourself from the ravages of inflation. My favourite is investing my money in stock market investments that provide capital gains and a stream of income. A small note; please do not pick high dividend stocks if you are unsure what you are doing or do not yet know how to do technical analysis).

I know it sounds like a hard job, but you would easily invest around £90 if you planned to put some small amounts aside.

You could also follow my approach. Just like a pension, I am putting some of my initial income aside for investing. Right away. Even before paying for anything else. Then as my research guides me, I make my purchases. I never try to market. I consistently invest because I am playing the long-term investment game.

If you are not ready to do your research and think it would take time to train yourself, you can still invest with some known ETF. You might check FTSE100; it returned a small %5.75. Yes, it returned less than inflation, but it beats the bank.