Tag: inflation

Money Mistakes: Avoiding the Pitfalls That Can Lead to Financial Ruin

Money management is a skill that affects every aspect of our lives, yet many of us find ourselves making costly mistakes that set us back on our financial journey. The world of money mistakes is plentiful – those common missteps that can undermine our financial well-being if not navigated wisely. From overspending to neglecting emergency funds, these pitfalls are important to recognize and avoid. By understanding these money mistakes and learning how to steer clear of them, you can secure a more stable and prosperous future.

High-Interest Debt

Accumulating high-interest debt, such as credit card balances, can feel like a quick fix when money is tight. However, it’s a perilous path that can lead to a never-ending cycle of payments, high-interest rates, and mounting financial stress. When faced with overwhelming debt and a financial crisis, individuals often contemplate drastic measures to regain control of their finances – enlisting the services of a trustee bankruptcy can provide valuable guidance and legal expertise during this challenging process. Using credit irresponsibly can have a long-lasting impact on your credit score and overall financial health. Instead, focus on paying off existing high-interest debts systematically, and avoid carrying balances whenever possible. Responsible credit card use and exploring lower-interest debt consolidation options can help you break free from the clutches of high-interest debt.

Overspending

One of the most prevalent money mistakes is falling into the trap of overspending. In today’s consumer-driven society, it’s all too easy to succumb to the allure of instant gratification. Impulse purchases, unnecessary luxuries, and living beyond one’s means can quickly drain your bank account and leave you drowning in debt. 

To avoid this pitfall, it’s crucial to create a realistic budget, track your expenses, and differentiate between wants and needs. By exercising self-discipline and focusing on your long-term financial goals, you can curb the urge to overspend and build a solid foundation for your financial future.

Neglecting to Save

Life is full of unexpected twists and turns, and financial emergencies can strike at any moment – from medical bills to car repairs. Neglecting to build and maintain an emergency fund is a grave money mistake that can lead to financial ruin. Without a safety net, you may find yourself relying on credit cards or loans to cover unforeseen expenses, plunging into a cycle of debt. To avert this crisis, prioritize creating an emergency fund that can cover three to six months’ worth of living expenses. Having this financial cushion ensures that you’re prepared for the uncertainties that life may throw your way.

Lack of Financial Education

In a world filled with complex financial products and investment opportunities, a lack of financial education can be your undoing. Failing to understand the basics of investing, taxes, and retirement planning can lead to poor decisions and missed opportunities for growth. Educate yourself by reading reputable financial literature, attending workshops, or seeking guidance from financial advisors. The more you know about managing and growing your money, the better equipped you’ll be to make informed decisions that align with your long-term goals.  In addition to understanding the basics of investing, taxes, and retirement planning, it’s essential to be aware of potential financial benefits, such as the medical expenses tax rebate, which can help you alleviate the burden of healthcare costs, allowing you to allocate more resources towards your investments and savings for a secure financial future.

Ignoring Retirement Planning

One of the most critical money mistakes people often make is ignoring retirement planning until it’s too late. Many young adults believe retirement is far off in the future, causing them to delay contributing to retirement accounts. However, time is a powerful ally when it comes to growing wealth through compounding interest. 

By starting to save for retirement early, even with small contributions, you can take advantage of the years ahead to build a substantial nest egg. Ignoring retirement planning can lead to financial hardship in your later years when your earning potential may decrease. To avoid this mistake, research retirement account options like 401(k)s or IRAs and begin contributing as soon as possible.

Lifestyle Inflation

As your income increases, it’s tempting to upgrade your lifestyle with bigger purchases, fancier vacations, and more luxurious comforts. However, succumbing to lifestyle inflation is a subtle but significant money mistake that can hinder your financial progress. While treating yourself is important, constant upgrades can inflate your expenses and leave little room for saving and investing. 

It’s crucial to strike a balance between enjoying the fruits of your labor and securing your financial future. Whenever your income rises, consider diverting a portion of the additional earnings towards savings and investments rather than solely increasing your spending. This approach can help you maintain a comfortable lifestyle while still building wealth over time.

 

From the allure of overspending to the danger of neglecting retirement planning and falling into the lifestyle inflation trap, these pitfalls can derail even the most well-intentioned financial plans. However, armed with knowledge and a commitment to making informed choices, you can steer clear of these money mistakes. By adhering to budgeting practices, establishing emergency funds, managing debt responsibly, seeking financial education, planning for retirement, and resisting lifestyle inflation, you’re poised to secure a future of financial well-being. 

52% of Irish SME businesses have raised prices to counteract inflation squeeze

There is a continued trend of price hikes across the business landscape as 52% of Irish SME businesses have taken the step to raise their prices, according to the latest Linked Finance SME Confidence Index, based on research conducted by Behaviours & Attitudes.

According to the Central Statistics Office (CSO), Consumer Price Index was 4.6% for July, down from 4.8% in June; and 9.6% in July 2022. Initial steps taken by businesses to tackle the inflation squeeze have focused on price increases, but as Ireland’s rate of inflation slows down, businesses are looking to boost earnings.

The survey found 54% of businesses have taken measures beyond pricing to mitigate the effects of inflation. The measures include: 34% of businesses have cut their operational costs, 19% have pursued product diversification, and 12% have introduced discounts and promotions to navigate the challenging economic environment.

Despite tightness, a positive sign is evident as fewer businesses anticipate a decline in activity for the upcoming quarter, with a projected uptick in business activity for Q4 2023. The Index shows that 83% of businesses expect to perform better or in line with projected expectations compared with the same period last year.

“Notwithstanding inflation and a price squeeze on businesses and consumers, there is evidence of the resilience that defines Ireland’s SME sector and reflect its adaptability in the face of changing economic currents,” comments Niall O’Grady, CEO of Linked Finance. “The ability for businesses to innovative and put solutions in place such as product diversification and promotional campaigns, underscores the evolving strategies adopted by businesses as they navigate through a phase of tempered enthusiasm.”

Niall O’Grady, CEO of Linked Finance. Pic. Bryan Meade 17/02/2021

Overall, the Q2 2023 SME Index sees a notable levelling off in business optimism. The latest Index showed Business Optimism at a level of 61.90 (out of 100), only slightly up from 61.62 a year ago, despite a large drop in inflation during the same period last year.

In a surprising turn, the retail sector has demonstrated remarkable performance, defying expectations. This quarter, retail businesses have seen significant gains in their business activity. Recent findings from the ESRI also found that strong improvements in retail sales continues to drive growth in the Irish economy.

However, it is noteworthy that 75% of Retail & Wholesale businesses have increased their prices, reflecting the overarching trend of price adjustments in response to inflationary pressures.

“While we are seeing increased business activity in segments of the economy and business continue to pass higher prices onto consumers, it hasn’t fully translated into higher profits and earnings. This highlight the pressure that businesses are under due to external factors and influences,” continues O’Grady.

“While challenges remain, the anticipation of improved business activity for Q4 2023 and the potential for job growth in regional markets provide hope for SMEs.”

Through its online lending platform, Linked Finance provides accessible and efficient funding options for small businesses, ensuring that they have the necessary resources to thrive in today’s competitive business landscape.

For more information about the Linked Finance SME Index and to access the full report, please visit https://www.linkedfinance.com/.

Revolut research finds that parents with children are thought to be most impacted by inflation

New research by Revolut, the global financial super app with more than 2 million customers in Ireland, has delved into the impacts of inflation. The majority of people in Ireland think prices will continue to go up this year, with parents with children being most impacted compared to other household types.

Revolut recently reported that the average consumer in Ireland is spending 17.8% more, year on year. However, the survey of 1,000 people in Ireland found that 56% of people think prices will go up even more this year. In contrast, 15% think prices will go down in 2023, with 18-24 year olds being the most optimistic with 31% thinking prices will go down. 45-54 year olds are the most pessimistic as 63% think prices will increase further this year.

When asked which types of households those polled think are most impacted by inflation and high prices, 69% of people said parents with children. Despite some expenses such as children’s clothing only increasing by 5.8% year on year, the number of customers paying for child care services has gone up 185%, year on year, likely due to the relaxation of covid restrictions.

Other answers of which households are most affected by inflation include retired people (36%), students living with roommates (30%), and singles (24%). As supermarket spending has increased 14.3%, price rises are impacting all walks of life.

Furthermore, salaries haven’t kept up with inflation according to the research, as only 10% said they had a pay rise last year to match inflation. Overall, 37% of people said their salary didn’t increase last year. 21% said their salary wasn’t increased and don’t think it will rise this year either. Only 5% of people said that although their salary didn’t increase last year, they will negotiate it this year, and 7% think their salary will increase this year. However, 3% said their salary decreased last year.

24% of those surveyed said their salary had increased, but below the rate of inflation. 10% said their salary was raised last year above the inflation rate. But, the data also shows women have been at a disadvantage as 16% of men said their salary was raised above the rate of inflation, but only 5% of women said this was also the case for them too.

The research, carried out by Dynata in January, found that Dublin led the way with salary increases, where 12.8% said their salary was increased above the inflation rate in the last year. However, 28.7% of people in Connaught said their salary was not increased, and don’t think it will be in 2023.

The survey revealed that if those polled were given an extra 10,000 EUR, 15% would spend it on essentials before prices go up further. 15% would save it, 13% would put it aside in a current account they have easy access to, and 11% would spend it on experiences such as travelling.

The average person in Ireland is spending 20.7% more on travel overall, year on year. In January, spending on hotels (35.8%) and airlines (55.5%) increased, year on year. Spending on cruises increased by 144.5% and saw a 39.9% increase in the number of customers making bookings.

The rise of inflation has meant that 38% of people in Ireland are looking to save more money for a rainy day. 36% feel the rise of inflation has taught them how to consume less overall, 13% are looking to focus their money on experiences rather than material goods.

Despite the rise in the cost of living, Revolut recently reported that consumers in Ireland have boosted their generosity. Donations to charity increased by 14.6%, and 8.9% more people gave to charity in January 2023, compared to January the previous year. The survey suggests these figures could grow further, as 18% of people plan to donate more this year than in previous years.

A Revolut spokesperson said: “Our research gives insights into how the rise in cost of living is affecting the priorities of consumers. People in Ireland are ensuring that essentials and saving take precedence. However, travel and experiences continue to be sought after by consumers, as people look to visit new destinations after a turbulent couple of years for the travel industry. It’s also positive to see that as inflation rises, the generosity of people increases as many look to donate more to charities this year to help those less fortunate.”

How Can You Beat the Rising Rate of Inflation?

The UK is in the grips of severe economic crisis, and one which has had multiple triggers and catalysts over the last few years. Downturns in business performance over the pandemic were compounded with a shock rise in the rate of inflation, itself caused by barriers to international trade. 

Today, the rate of inflation remains above 9% – representing a major threat to the average UK household’s cash holdings. With your savings effectively losing value each day, what can you do with your money to combat the rate of inflation?

High-Interest Savings Accounts

In recent history, savings accounts have not been the best option for passive growth of wealth. Since the economic crisis of 2008-9, interest rates for savings accounts sat below 1%, making for slim gains over time. But in response to the rising rate of inflation, the Bank of England has moved to increase interest rates – and been forced to push them even higher in response to the government’s pro-growth ‘mini-budget’.

The result is a growing competitive market for savings accounts, in which certain limited access savers offer impressive rates of interest. These interest rates still do not touch the rate of inflation, but are good breakwaters nonetheless; they can help reduce the impact of inflation on your spending power while you make more robust long-term plans.

Currency Trading

The UK’s recent economic crises have resulted in some interesting behaviour with regard to the value of the pound. As a direct result of the aforementioned ‘mini-budget’, the pound fell to near-parity against the dollar for the first time in decades. This makes the cost of importing much more expensive, which threatens the inflation rate even more.

However, the volatility of the pound presents a clear opportunity on the forex market. Those with a little more understanding of the budget’s implications were able to hedge against the pound, buying dollars before the fall and preserving the initial value of their investment. By buying back pounds now, forex traders increase their holdings dramatically. With the pound set to rise again, and the dollar continuing to grow, now could be a good time to actively grow income on the forex market.

Lifetime ISAs

The Lifetime ISA (or LISA) is a relatively new financial product which allows savers to take advantage of government subsidy in specific scenarios. The LISA enables you to save up to £4,000 tax-free each year, with the government topping up your savings by 25% each year. The caveat is that your savings must be spent on either your first home, or on retirement, otherwise a 25% withdrawal fee applies. 

In practice, this is the highest ‘rate of interest’ you can achieve without active market engagement – and if your LISA is a Stocks and Shares ISA, you could be eligible for further returns through active market engagement anyway