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Experts explain how to manage your finances amid rising inflation

Experts explain how to manage your finances amid rising inflation

Adhil Shetty, CEO of Bank Bazaar, explains in a Business Today digital exclusive how to inflation proof your finances and stay on top of the game

The Reserve Bank of India hiked repo rates in an attempt to combat inflation. The Reserve Bank of India hiked repo rates in an attempt to combat inflation.

The rising inflation has become a cause of concern for governments and Central Banks across the world. Recently, the Reserve Bank of India hiked repo rates in an attempt to combat inflation. This rate hike would make home loans more expensive, FDs more attractive.

But amid all this, how to manage your finances well?

Adhil Shetty, CEO of Bank Bazaar explains in a Business Today exclusive how to inflation proof your finances.

1. Plan for an additional year or two of loan repayments even if you are planning prepayment.

So the first advise Shetty has for all BT readers is to mentally and financially be prepared to repay their existing loans for a longer period of time. This is to ensure that loan payers are ready for any contingency that shows up in the future.

2. Make small increments in investments towards other goals so as to compensate for any upheaval caused by this increase in tenor

Shetty also advises to make slight increments in investments that serve other goals. This is to make sure that the investors are cushioned financially despite the recent chaos in the economy.

3. Plan to make regular prepayments on your home loan. Ideally 5% of outstanding is the most optimal way to close your home loan, but even paying one additional EMI each year can bring down the entire impact of the rate hike.

On the topic of home loans, Shetty explains that even paying a single extra EMI every year would soften the impact of the repo rate highs and burden the investor's pockets less.

4. Put money towards an emergency fund equal to your family's 3-6 months' income so that you may not need to take on more credit in case of an emergency. 

Emergency funds are important and Adil suggests that every investor should have an emergency fund. This way, investors would be able to avoid loans in case of emergencies.

5. Catagorise financial goals based on their priority, investment time frame, and corpus requirement, and start saving towards each of them individually.

Segregating savings based on priority, time frame, amount, etc is next on Adil's list. By starting to save towards each goal individually, investors would be able to achieve their financial goals in time.

6. Despite the rate hike, FDs and small savings will not be enough to build a corpus. So continue with long-term equity investments.

One of the impact of the recent repo rate hike has been the increase in FD rates. FDs might seem to be a lucrative investment option in this light but Shetty explains that equits investments are still best for long term financial goals.

7. For capital protection, stick to short-term FD and small saving schemes. Keep the tenor low and ladder fixed return instruments to get the most out of rising interest rates.

To ensure that ones capital is not depleting amid the rising inflation, Shetty suggests investors to use FDs and other small saving schemes for short term goals.

8. Do not break ongoing FDs and small savings to reinvest once the rates begin to go up as this will reduce the interest you will earn on such investments.

Investors might feel tempted to break existing FDs and reinvest the amount to capitalise on the rate hike. Shetty strongly advised against this because it would reduce the interest income from these investments.

9.Try to increase your savings by 5% every year. If that's still too much, increase by 1% or whatever works for you, but increase the amount you save in absolute terms.

To combat the rising inflation, Shetty advises investors to increase their savings every year by 1 per cent to 5 per cent. 

10. Make sure you have your own personal health cover your yourself and your family as well as ample life insurance to protect your family financially in case of anything untoward.

Lastly, Shetty advises all investors to sign up for insurances in case of medical and other emergencies.

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