Inflation is a silent killer - know how to control your expenses
Expenses are something that can be tackled. Before discussing strategies to control expense first let us try and understand categories of expenses. Broadly there are two categories of expenses (i) Mandatory (ii) Voluntary. Within each of these categories there are fixed and variable expenses e.g. Mandatory fixed expenses e.g. school fees, house rent etc. Next these are Mandatory variable expenses like grocery, medical and health care expense etc. There is absolutely no one way can avoid mandatory expenses.
In case of voluntary expenses again there are two categories e.g. Voluntary fixed expenses e.g. Gymnasium fees, club membership etc. Voluntary variable expenses include eating out, vacations etc. While the inflation is rising we should cut down on voluntary variable expenses at once. Also as and when renewal for voluntary fixed expenses come up same can be reduced or stopped completely.
Even after controlling voluntary expenses if we are struggling to make two ends meet, then we should follow step down process. Let us consider example of cost of transport to work, a mandatory variable expense. Using a chauffer driven car is the upper most step and walking is lower most step. After deciding on these two find our other options by lowering one step. After chauffer driven car next lower step could be to self drive car to work. Step lower than that could be car pool and step lower than car pool could be to use public transport. Once the ladder is constructed we should find out optimal suited option.
Invariably we focus too much on risks which are transparent like volatility of equity market, illness in family etc. Unfortunately a non-transparent risk like inflation gets ignored. However, just because we cannot see impact of inflation on our finances, it does not mean inflation does not exist. Inflation is a silent killer and if we ignore it, one day it will kill us.
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07-03-2008, 11:48 PM
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