5 tips to avoid losing purchasing power

Inflation and the loss of purchasing power of salaries reduce the savings and spending power of millions of people

It is estimated that last year, the loss of purchasing power of Spanish wages amounted to 3.8% due to the high inflation resulting from the exit of the pandemic and the war in Ukraine. According to the OECD, in the first quarter of 2023, the loss of purchasing power slowed down but still fell by 1.2%, thanks to the drop in inflation.

But… what is purchasing power? The ability to buy goods or services with available money, i.e., savings. If inflation or the tax burden rises more than wages, wages register a loss of purchasing power. Or, to put it more mundanely, fewer goods or services can be purchased with the same salary.

Hence, it is vital for workers and families not to lose purchasing power since this loss translates into a decrease in savings and hampers the consumption capacity of households.

A person cannot individually modify the evolution of inflation and prevent, for example, a bottle of olive oil from approaching 10 euros. However, he can implement several measures to avoid losing purchasing power. Above all, by investing your savings and reaping interest that will outweigh the impact of inflation.

In this article, we will explore five actions that can be implemented to prevent a saver’s purchasing power and savings from being eroded by the rising cost of living.

Be aware that inflation eats away at your savings

Many people, predominantly those more conservative when managing their money, tend to keep their savings in bank deposits. However, this decision is ineffective in avoiding the loss of purchasing power in a context such as the current one, in which inflation does not cease, and the remuneration banks offer for deposits is below the European average and does not compensate for inflation.

Therefore, the best option for savers is to invest their money to reap interest or passive income that will not only allow them not to lose purchasing power but also to gain it—especially those most affected by the loss of purchasing power in the last decade: young people.

We are well aware of the pernicious effects of inflation when we go to the supermarket and realize that our weekly shopping has become more expensive. Or when we want to buy a certain device and find it has become significantly more costly. Well, inflation also erodes our purchasing power more subtly, devaluing our savings.

That is why it is essential not to adopt a passive stance but an active one. Get down to work to gain purchasing power and increase our purchasing power by investing wisely.

Diversifying investments helps to avoid losing purchasing power

Earn passive income to avoid loss of purchasing power

What’s the best way to proactively fight the loss of purchasing power? Investing.

Many small savers believe that the investment arena is not for them. However, access to the investment sector has been democratized in recent years thanks to new technologies and the emergence of FinTechs. To invest, it is no longer necessary to have a high level of financial knowledge or to go to a banking institution to delegate investment strategies to professionals.

Today, any citizen can invest their money through their personal computer, smartphone or tablet. Retail investment platforms such as Inversa Invoice Market offer investors:

  • All the information about the investments they can make (interest, risk, term of return of the invested money…). In the case of Inversa, invoices issued by companies in the real economy have not yet been collected, and these companies wish to advance their collection in exchange for offering interest to investors who pay the amount.
  • Intuitive, easy-to-use, unbureaucratic solutions that can be consulted anytime, anywhere.
  • Total control over decision-making and monitoring of the investments made.

Never before in history has it been so easy to invest in financial products that are simple to understand and have all the relevant data to design investment strategies and make decisions to maximize savings.

Invest in products you understand and diversify your investment strategies

An essential aspect you need to keep in mind to avoid losing purchasing power is that you should only invest in products you can understand.

Suppose investment in housing has been so crucial in our country over the decades. In that case, it is precisely because everyone can understand what they are investing their money in and can even step on their investment. In addition, obtaining passive income is also very easy to understand: for example, you can rent your home for tourism purposes.

On the other hand, in the financial sector, many products offer very lucrative interest rates but which, due to their complexity, are not designed for savers who want to avoid losing purchasing power and earn passive income to supplement their salaries—for example, futures or options.

What products can savers invest their money in? The catalog of investment mechanisms is increasingly broad: government bonds, equities, factoring and crowdfactoring, lending and crowdlending, mutual funds, and bonds…

The options are manifold. There are fixed-income and variable-income products, long-term and short-term, with a higher level of risk or investments with no trouble (public debt, insured invoices…). This facilitates an issue of vital importance in terms of investment: diversifying strategies. Or, in other words, investing only some of the money you want to invest in a single product.

Young people can invest their money in company invoices to avoid losing purchasing power

Invest continuously

Inflation doesn’t take days off. The loss of purchasing power is a continuous process, and, therefore, to fight it, it is essential to be constant. The technological revolution we have experienced in recent years has not only facilitated access to investment for millions of people but also made it possible for investment strategies to be implemented continuously without consuming much time.

With as little as 10 minutes, people can manage their investments without leaving home by accessing web and mobile platforms and applications.

Moreover, some companies, such as Inversa Invoice Market, use Artificial Intelligence to offer investors investment automation tools. What do these solutions consist of?

  1. Investors set the parameters that the investment products they wish to purchase must meet (maximum amount to invest, minimum return, maximum return period, admissible risk threshold…).
  2. The automation tools detect potential investments that meet the investor’s objectives and undertake the investment following all the investor’s indications.

In this way, the investor remains in control of his investments at all times and makes all the decisions while being freed from having to consult the investment platforms on which he operates continuously in order not to miss out on attractive investments.

Adapt your investment strategies to adapt to change

We live in a historical moment in which changes are happening exponentially. And many of them have direct repercussions on people’s purchasing power and the investment sector.

For example, investing in housing at a time when prices are at historic highs, mortgages are sky-high, and the cost of repairs and construction work is high may not be the best option for earning passive income and starting to offset the investment.

Therefore, it is essential to know how to adapt investment strategies according to the social and economic context. At one point in time, it may be very attractive to invest in government bonds because they offer attractive interest rates. On the other hand, at another time, the interest may be practically nil, which would not increase the purchasing power of the person investing in public bonds.

In addition, the personal and vital dimension of the investor must also be taken into account. At certain times, a person may have more money to invest, while at other times, he may have liquidity problems. Sometimes, an investor can afford medium- or long-term products. At the same time, at different times, he may wish to rely on short-term investments, earn interest quickly and recover his investment in a short period.

Both the macroeconomic context and the situation of the personal economy are fundamental when designing investment strategies and adapting them according to the needs and objectives of each investor.

In this sense, Inversa Invoice Market’s crowdfactoring platform offers investors the possibility of obtaining immediate interest by investing in invoices whose expiration date does not exceed six months and, as a general rule, is around 90 days. In this way, savings can be made profitable from the very first moment, and the loss of purchasing power caused by inflation can be combated.

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