Shopping for value, in style

For consumers, 2009 is likely to go down in history as the worst of times. Prices climbed steadily, interest rates were far from friendly, and credit was not so easily had. The last was particularly galling, given that the companies that virtually gave away credit cards with toothpaste two years ago were being coy about increasing your credit limit.

There’s little we can do about rising prices; staple commodities will continue to cost the earth. But we can learn not to trust the WPI or wholesale price index as any indicator of prices. Instead, we ought to be looking at the far more relevant consumer price index or the CPI, which touched a high of around 13% in July 2009. This is what’s sending our weekly grocery bills into orbit. But learning to look at a different index is just one aspect.

It’s important to have a spending strategy in place to take care of those bills. Job loss or pay cut, you still need to pay for rice and wheat. This is something 2009 taught many investors the hard way: the importance of an emergency fund.

To be sure, we’ve been saying this for years. But it is when you cannot meet daily expenses that you realise the need for such a fund. By then, it’s too late. Which is what forced most people into debt this year. Those of us who have been lucky enough to escape this should learn from our neighbours’ mistakes and create an emergency fund: enough liquid cash to take care of six months’ living expenses. Pay no heed to ‘experts’ who tell you that you earn nothing on liquid cash.

Those without the cushion of an emergency fund were forced to take loans. And ended up being far poorer because of high interest rates and stiff terms. Savvy borrowers learned to repay on time so as not to damage their credit history. Those who were not aware of the importance of a good credit score found their applications for loans and credit cards being rejected.

You’ve heard time and again about the dangers of rolling over credit, but when there’s little money coming in and with prices going up, you might have been tempted to do just that. Learn from what’s happening elsewhere in the world. In the US, for instance, borrowers have found themselves bankrupt simply because they did not pay their credit card dues on time.

The good news is that it hasn’t been a relentlessly bad year. Thanks to the downturn, cash-strapped companies and retailers have gone all out to lure customers with sales, discounts and freebies. In season, off-season, festival, pre-festival—it sometimes seemed that there were sales simply because the day ended with ‘y’. As customers learnt how desperate companies were, they also learnt to drive hard bargains, and more often than not, ended up with great deals.

• Keep an eye on the Consumer Price Index instead of headline inflation for accurate information on the extent of the price rise.
• There are great deals in the market, so keep yourself informed, be it about the innovative tariff plans for telecoms or bundling of several products.
• Create an emergency fund equivalent to three to six months’ essential expenses so that you do not sweat if the expected increment doesn’t come.
• Try to avoid taking loans for consumption. Make sure your credit card bill is not over 20% of your income to stay in the ultra-safe zone.