The current economy situation over here in Nigeria is a topic for discussion on everyone's lips. Even the foetus in the womb is being affected that it keeps calm no more. I really can't tell if citizens of other countries are being affected by this inflation of a thing. Usually, a state whereby inflation hits the economy comes with hope that it's gonna last for just a short period of time and when the right things are put in place, everything's gonna normalize.
However, reverse has been the case in preceding months. Prices of goods and commodities has skyrocketed due to the high cost of fuel. Maintenance strategies require huge amount of bills to go through successfully, honestly I would say we're in a dire hopeless situation.
It's as though a boat moving to an unknown direction in a stormy ocean. It's been this way for months and instead of things being done by the government to ease this suffering, we've got to face worse situations. With our access to international dollar markets and exchange platforms being restricted by law, I doubt we'll survive this.
A blow to our cheeks I'll say, what's tomorrow gonna look like, are we doomed? That I can't say. Meanwhile, the turn of events on the economy and the speedy inflation rate has greatly affected personal finance which is quite obvious to human eyes. The severity of its occurrence has been clearly seen and without doubt, it's toil on budgeting and personal finance, I can personally relate.
Meanwhile, what impact has inflation had on individual's personal finance so far? According to research, the effect is tremendous, let's check them out together:
Reduced purchasing power
Inflation being the general increase in the prices of goods and services has led to the decrease in the purchasing power of money. How? It erodes the value of money, this is to say that at 2023, one could purchase many goods and products with a certain amount of money but with that same amount today, we get to buy fewer items than before. Since the purchasing power of individuals has been greatly reduced, high cost and standard of living is well maximized and unaffordable.
Savings erosion
Just like erosion washes away the soil, inflation washes away or diminishes the value of savings overtime. For instance, if money is invested in a savings account or other investment related vehicles, the interest rate might not be at the same pace with inflation given the situation, thus the real savings value is badly affected and decreases automatically.
Interest rates
Interest rates are usually often affected when inflation sets in as world and central banks tend to adjust these rates in response to inflation. When inflation sets in on a higher pace, banks increase the rates to control it, personal finances are affected in the process as it increases borrowing costs, mortgage rates making it rather difficult to purchase and own personal belongings
Income levels
While inflation gradually takes over the market and work environments, employers may have to adjust their wages to keep same pace with inflation. Thus, there may be fluctuations and lag between rising prices and wage increase leading to decrease in worker's purchasing power
Budgeting Challenges
Inflation poses very big challenges for budgeting and financial planning. The rise in the prices of goods and commodities may force individuals to allocate more of their funds/income towards important life necessities like groceries, healthcare, shelter and the likes, since inflation cannot deter the masses from getting life's basic necessities, it however, puts a strain on man's income and budgeting plan towards acquiring them.
The impact of inflation cannot be limited to the above listed points as it covers a wider array of effects of which are:
Debt dynamics as a result of inflation can always lead to erosion of purchasing power of money between borrowers and lenders
Fixed income individuals have been victims of inflation, due to the fact that their income has a fixed stipulated amount, it remains stagnant no matter how high the prices of goods and commodities seem to be
Conclusively, inflation has had profound effects on the lives of individuals and personal finances. It is however important that the government and NGO's see to it and ensure its decrease in effects through proper proactive financial planning and investment strategies to further mitigate its effects.
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