Inflation can kill your salary, but you can make it work for you

Growing up in Argentina, I experienced more inflation and forex volatility in my first 15 years than most westerners encounter in several lifetimes. When I was 8 years old, I purchased my first 3 US dollars from my dad with the savings from my allowance. I sold it back to him 6 months later for a 500% profit in Argentinean pesos, but I was quickly disappointed to realize that I could buy barely 20 more candy bars with that windfall.

When I was 13, I could pay for a bus ride with a coin worth 1 Austral, the new local currency launched in 1984. But by the time I was 14, I was paying that same bus ride with a 1 million Austral bill. The news often showed people fighting for the priority to buy US dollars first at banks. Salaries were spent as fast as people could, as they knew their money was going to be worth less by the next afternoon.

I still remember the announcement that the dollar exchange rate jumped 77% overnight in February 1987 while half the country was away on vacations. My dad sighed in relief as he had exchanged most of his pesos to dollars in advance, looking forward to a stress-free vacation just in case anything weird happened. Some people had to cut their vacations short and rush back to argue with the bank. However, I also remember my dad telling me how fixed-rate mortgages had become suddenly available in local currency, not the typical more stable US dollars. Hence, he could buy his first apartment at an unbelievable discount, as payments had become progressively diluted by inflation, just as well. The last 5 payments were the equivalent of a hot dog on a street stand. There was also that time when traveling in Europe and the US was cheaper than a vacation in our home country.

Let’s unpack this as there are a few lessons here.

Fighting Inflation: Strategies from Personal Experience

There is no way around the fact that inflation will always affect those with the lowest salaries. Your purchasing power gets diluted on the spot – it’s just like dry sand escaping from your fist; there is very little you can do to stop it. Unless…

Here are some suggestions of what we can do to fight against inflation out of my own personal experience:

1. Diversify Your Income Streams: Don’t rely solely on a regular paycheck. Explore side hustles, freelance work, or passive income opportunities to supplement your main source of income. This can help offset the impact of inflation on your primary earnings.

2. Invest in Real Assets: Consider putting your money into tangible assets like real estate, precious metals, or even cryptocurrency. These tend to hold their value better than cash during inflationary periods. Affordable housing solutions organizations can provide guidance on responsible real estate investment strategies.

3. Negotiate Your Salary: When inflation is high, be proactive in asking for regular cost-of-living adjustments or even a pay raise to maintain your purchasing power. Demonstrate your value to your employer and make a compelling case for why you deserve a higher salary.

4. Automate Your Savings: Set up automatic transfers from your paycheck to a high-yield savings account or investment account. This ensures that a portion of your income is protected from the eroding effects of inflation.

5. Refinance Debt: If you have outstanding loans or mortgages, consider refinancing them to lock in lower interest rates. This can help offset the impact of rising prices on your monthly payments.

6. Embrace the Gig Economy: Take advantage of the flexibility and earning potential of the gig economy by picking up work as an independent contractor, freelancer, or rideshare driver. The additional income can help you stay ahead of inflation.

7. Adjust Your Spending Habits: Be more mindful of your discretionary spending and look for ways to cut back on non-essential expenses. This could involve buying in bulk, shopping secondhand, or negotiating bills and subscriptions.

There is definitely more options if you want to put in the time and effort, but these are good starting points for most people. Again, these are not recipes to get rich quick – only ways to protect yourself from inflation.

Lessons from Argentina’s Hyperinflation

The experiences I had growing up in Argentina during periods of high inflation taught me some valuable lessons that I continue to apply in my personal and professional life. Here are a few key takeaways:

1. Adaptability is Key: Inflation can throw curveballs and force you to adjust your strategies on the fly. Developing a nimble, adaptable mindset is crucial to weathering the storm.

2. Diversification Mitigates Risk: Putting all your eggs in one basket can be disastrous when inflation runs rampant. Diversifying your investments, income sources, and even your savings can help you withstand the volatility.

3. Leverage Opportunities: While inflation presents many challenges, it can also create unique opportunities. My dad’s ability to secure a discounted apartment through a fixed-rate mortgage is a prime example of seizing an advantageous situation.

4. Timing is Everything: Knowing when to make financial moves, like exchanging pesos for dollars, can make all the difference. Staying informed and anticipating market changes can help you get ahead of the curve.

5. Maintain a Positive Mindset: It’s easy to get bogged down by the negative impacts of inflation, but adopting a glass-half-full perspective can help you identify creative solutions. Embracing the rollercoaster ride, rather than resisting it, can unlock new possibilities.

These lessons have served me well throughout my career and personal life, and I believe they can be valuable for anyone navigating the challenges of inflation, whether in the United States or elsewhere around the world. By staying adaptable, diversified, and optimistic, we can turn inflation’s obstacles into opportunities for growth and financial resilience.

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