According to estimates by the Central Statistical Office, inflation in Poland (CPI inflation) was 17.2 percent in September 2022. 17.2 percent, and up 1.6 percent on the previous month, the worst result since February 1997. The prices of basic everyday products, energy prices and costs associated with renting an apartment or servicing mortgages are rising sharply. In this situation, many women are wondering whether saving makes any sense. Read how to protect your savings wisely and how to achieve your financial goals without giving up a certain standard of living.
Table of Contents:
- How does inflation in Poland affect savings? Does it still make any sense to save in times of high inflation?
- Savings in times of high inflation – what not to do?
- How do you plan your budget when inflation is high?
- How to build a financial cushion?
- Savings in a sock – does it pay off?
- How to invest wisely while consciously managing risk?
- Real estate as a way to secure large savings
How does inflation affect savings? Does it still make any sense to save in times of high inflation?
Many people express doubt that it pays to save money at all in times of high inflation. Does it make any sense in a situation where accumulated savings are about to lose their value significantly any day now? Wouldn’t it be better to spend everything as soon as possible? Shopping seems tempting, considering that the price for your dream car or camera will be much higher in a few months. In reality, however, the basic principles of rational budget management in times of high inflation are almost identical to those that should be followed when inflation is low.
Although when we see significant price increases, frantic shopping may seem like the best option, in reality we should always think about securing our cash flow first. This doesn’t mean, of course, that you should postpone a long-planned apartment renovation when there are many indications that the prices of building materials will go up – you just need to look at the bigger picture. Beautiful tiles cannot be used to pay off loan installments, settle bills or pay for medical treatment. If you are saving money in quiet times, with high inflation it is all the more worthwhile to take care of this issue. An expensive price tag is a sign that the economy is going through some turbulence, for which it had better be well prepared.
Savings in times of high inflation – what not to do?
Wanting to protect capital from inflation, it is easy to react emotionally and make one of two basic mistakes:
- start impulsively spending money fearing its rapid loss of value;
- Invest in high-risk products without understanding their specifics.
Instead, a much better solution would be to carefully analyze the household budget, all incomes and expenses, pay off expensive debts, and then build a financial cushion. Only in the longer term is it worth thinking about investments, especially those involving significant risk or large expenditures.
How do you plan your budget when inflation is high?
Many people insist that they can’t afford to save in fact most often the exact opposite is true – most of us can’t afford NOT to save. In doing so, it is important to remember that smart saving is not about making sacrifices and lowering your standard of living, but about managing your budget wisely and achieving your own financial goals.
Polish women have mastered to perfection the art of hunting for bargains in supermarkets and preparing dinners “from nothing,” but this is not (not only) the path to financial freedom. Surveys indicate that almost 1/4 of Poles have no savings at all. This causes them to go into debt when something unexpected happens – such as a sudden car breakdown or illness. Meanwhile, various types of repaid loans and credits (even the “cheap” ones) can be a much bigger problem for our finances than inflation in Poland.
Wanting to take care of personal finances, first of all, you should always pay off your obligations such as various loans and credits (mortgage is an exception) and put your home budget in order, create a financial cushion as a safety net for “emergencies”, and only then can you think about investing. The basis of any action should always be a sound knowledge of home finances. The easiest way to get it is by carefully writing down all receipts and expenses. There are ready-made home budget templates for a specific year available online. You can also use self-prepared Excel tables, tools provided by the bank or simply a piece of paper.
This will allow you to see where most of your funds are “running away” and analyze which expenses are not necessary. It will be important to clearly prioritize – it’s not about denying yourself certain pleasures, rather – don’t squander money on something you don’t care about. Maybe instead of buying lunch at work every day, it will come out much cheaper to prepare healthy lunchboxes at home, and this will give you the means to visit a nice restaurant from time to time? The goal should always be a surplus that remains in the account. It can be used to build the so-called. financial cushion.
How to build a financial cushion?
A financial cushion is a term used to describe savings to cover sudden, unforeseen expenses or to help you survive when you lose your job. These are funds that should be readily available so that you can use them if necessary (meaning that they can be placed in a deposit that you can break without major consequences, but not in a fund that would cost a lot of money to get out of at any given time). Having a financial cushion keeps emergencies from catching you off guard and putting too much strain on your budget.
There is no single good answer as to how much money is worth allocating – many experts indicate that the equivalent of 3-5 times the salary is optimal. However, everyone has slightly different needs and capabilities. Even a small savings of, say, PLN 1,000 in a crisis situation can be worth its weight in gold. How to build a financial cushion? A good way would be to regularly use small surpluses in your account, e.g. of PLN 100-200, and systematically transfer them to a savings account. You can also allocate “excess” funds, such as an award at work, an inheritance or a thirteenth pension.
Savings in a sock – does it pay off?
It is obvious that with inflation reaching 17.2%, it does not pay to keep money in a sock. For those whose goal is primarily to protect their accumulated capital, low-risk products are recommended:
- Term deposits – are otherwise interest-bearing deposits in the bank, which you deposit for a specific period of time (e.g. three months, six months, one year). At the end of this time, the bank gives back the full amount plus interest. This is a popular financial product, which is characterized by high security (funds collected on deposits are covered by guarantees of the BGF);
- Treasury bonds – are securities sold by the Ministry of Finance. In this case, it is the Ministry of Finance that borrows the funds from bondholders, which it will return with a certain interest rate after a certain period of time. Inflation-indexed treasury bonds are currently very popular, and while they don’t allow you to make a big profit, they guarantee that you won’t lose out even if the price tag worsens.
- Corporate bonds – securities issued on a similar basis to government bonds by private companies. They involve little risk (only if the issuer goes bankrupt).
How to invest wisely while consciously managing risk?
Unfortunately, the methods described above most often only minimize the losses that inflation in Poland entails for our portfolios. Those who care about reaping tangible profits may be interested in riskier financial products, such as stocks, funds, Forex, currencies or cryptocurrencies, among others. Remember that smart investing requires a lot of knowledge and conscious risk management. Always ask yourself what degree of risk you accept, what period of investment you are interested in, and what happens if you don’t get your money back. Never choose financial products whose design you do not understand. For the riskiest investments, allocate only the money you can lose.
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Real estate as a way to secure large savings
Nowadays, a great many people see the purchase of real estate as a good way to secure large savings. When deciding to buy an apartment now, it is important to remember that this is an investment that will pay off only in the decades to come. A long-term lease can be very profitable, but one must take into account that in the first few years the investor will incur huge expenses. When deciding on this solution, it is necessary to assume that in the next few years the cost of mortgage repayments may increase a lot, high prices of building materials will continue. When buying an apartment for rent, you also have to reckon with the additional costs associated with having to furnish it, make regular renovations and repairs, as well as periods when there will be no tenants.