5 Ways to Protect Yourself from Rising Inflation in Ireland

  • By: Walter Dunphy ACCA
  • Date: April 21, 2022
  • Time to read: 5 min.

A surge in oil prices, war on the European continent and lingering pandemic supply chain issues have been driving inflation to highs we haven’t seen in decades. Inflation can be a silent killer and erode your spending power if left unchecked.

The running rate of inflation in Ireland in February 2022 was 5.7% per European Central Bank. In basic terms, this means that the same basket of products and services that cost your €100 a year ago will now cost you €105.70.

When we drill down into the details we can see that housing, electricity, gas and transport are the worst affected sectors, seeing average price increases of 15-16%.

Source : https://www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html

This is putting huge pressure on families, but is there anything you can do about it to protect yourself from this sudden rise in inflation?

In this blog post, we will have a look at a few measures you take to try and soften the impacts that inflation is having on your savings and your buying power:

1. Ask for a pay rise

Of course, it is not only individuals who are feeling the pressures of inflation but also businesses. This may mean you will have to be very tactical in how you approach asking your manager for a pay rise.

In most businesses, they may have a policy routinely giving company-wide pay rises of 2% (the expected annual inflation rate), but a 2% pay rise in 2022 will not be enough to offset the inflation we are seeing.

Your employer may be most likely to give you a more substantial pay rise if you can prove that you can achieve increases in efficiency or output. Another factor to take into consideration is that employees currently have more leverage than they did a decade ago, as the great reset has caused many to look at moving jobs in recent times.

Your employer will value continuity and mostly likely are seeing higher turnover rates compared to before. It can be also very difficult to find a replacement if you were to leave – recruitment fees can be extremely high.

2. Invest Your Money Wisely

Traditionally one of the best places to keep your money was in the stock market, but stocks have also taken a beating over the last 6 months as Central Banks around the world prepare to raise interest rates from near zero levels.

At the time of writing (20/04/2022), the S&P 500, which is often a benchmark used to evaluate investments, is down 7% year to date.

In troubled times like these, it is hard to beat investing in precious metals such as Gold. Gold has been one of the best performing assets so far in 2022 with a return of 7% year to date.

But this requires the correct timing. You would have had to have been holding a substantial amount of your funds in gold since the beginning of this difficult period to benefit from its anti-inflationary rise.

But even if you hold a small portion of gold as part of your investment portfolio through good times and bad, it can help to hedge against any stock market crashes as it is completely uncorrelated.

3. Pension Contributions

If you want to get a quick win, then making pension contributions can give you an instant return of 25-66% on your money.

This is because all pension contributions (up to certain limits depending on your age) entitle you to a tax credit of 20% if you earn below €36,800 and 40% if you earn above €36,800 per annum. This is one of the biggest tax advantages that you can avail of in Ireland.

This investment in your pension will also then grow tax-free until your retirement, where you can withdraw up to €200k tax-free at that time.

4. Crypto CeFi/DeFi

If you are holding your money in a deposit account you would be very lucky to be earning interest of 0.25% with any of the Irish Banks. This means your all of your savings will be sitting there losing buying power. This has led to many seeking an alternative place to hold their savings.

Cryptocurrencies have become very popular in recent years and one reason for this is that it is you can earn rates of 10%+ APY on stablecoins with certain CeFi and DeFi platforms.

Sounds too good to be true right?

Well what you need to understand is that crypto is still completely unregulated and the banks are not too happy about losing customer deposits to platforms such as Celsius and BlockFi. You’re deposits will not be guaranteed by a Deposit Guarantee Scheme like they would be with a bank.

Crypto regulation is lining up to first hit the CeFi and DeFi platforms but it is looking likely that this will still take many years to come to fruition.

In the meantime there are are still high yields to be earned with crypto, but its at your own risk.

5. Shop Around

Lastly when all else fails, there are still some deals that can be had from shopping around to try and ease the pains of rising prices. Whether its switching energy providers, switching mortgage, or cancelling subscriptions that are no use anymore.

A thorough look at your finances can be a very useful exercise to see where money may be being spent needlessly. Bonkers.ie are experts when it comes to switching providers and finding alternatives in Ireland and they have a post have a post which goes through 10 tips that are worth checking out.

Final Thoughts

It is unclear how long we will have to put up with these record inflation levels but even in times when inflation is at normal levels of 2% it is still important to have a strategy to grow your savings and investments at a faster rate to protect your wealth and buying power.

If you do not make any effort to offset the effects of inflation even a consistent rate of inflation of 2% can compound to make a big impact on your finances.

Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.

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