How to Be Smarter with Your Money to Beat Inflation

In 2019, all it took was one government policy to wipe out half of Dr. Strive Masiyiwa’s net worth, Zimbabwe’s only billionaire.

The Zimbabwean government banned the US dollar – which was the legal tender in the country – and introduced the Zimbabwe dollar. This resulted in hyper-inflation estimated at 737%.

By the end of 2019, Masiyiwa’s fortune had declined from $2.3billion in 2018 to $1.1 billion by the end of 2019.

Not to mention the millions of Zimbabwean’s who were forced or entrenched into poverty from the unfortunate incident.

Fortunately for Dr Masiyiwa, his business conglomerate spans across the globe. If his entire wealth had relied on the Zimbabwean economy, he would have lost 95% of his decades of work in one year.

While what happened in Zimbabwe was extreme, such are the challenges of building and preserving wealth in a country with an unstable economy.

In fact, this is not just peculiar to few Africa countries.

In the last five years, the Nigerian naira has lost over 58 percent of its value to the dollar. The USD exchanged $1 to N199 in 2015. In 2021, it has grown from $1 to N480.

This means is that, if you had put away one million naira in a savings account in 2015, your money will be worth N420,000 today. Even if you earned 10 percent interest per annum, you will still be at loss.

I could go on to talk about the impact of inflation on the overall cost of living, but I just want you to understand that relying on your local currency as your store of value is a doomed strategy. Your years of hard work and savings can suddenly be reduced to almost nothing by inflation or hyperinflation.

So how can you insulate your future from the effect of a weak currency if you live in such countries prone to high inflation? How can you protect your wealth from unpredictable political and economic instability?

Over the course of a decade, I have deliberately schooled myself in the art of protecting my finances from a weak economy. This is because I take my finances seriously, and I expect you to take your finances seriously as well. You work too hard to earn money. It’s not fair to lose the most part of it to chance.

In this video, I’m going to share with you how to be smarter with your money to beat inflation and currency devaluation.

The Money Triangle

If you want to succeed with money, you need to understand the three money skills that make the money triangle. If you want to take control of your finances, you need to develop all three skills.

1. Make more money

If you are earning just above minimum wage, your priority should be to make more money. This is because your income needs to grow faster than the inflation rate. If you are earning the same amount as you were earning 18 months ago, you need to do something about it.

One of the surest ways to make more money is to get more education that either equips you to increase your value at what you are currently doing or to explore alternative sources of income.

Education in this context is not about getting more degrees. But rather about getting up to date with relevant skills required in the marketplace. The more value you can bring to the marketplace, the more money you can make.

However, unless you are a high-end income earner, just focusing on growing your income is also risky. For instance, in the case of Zimbabwe, how many people could have grown their income by up to 95% in one year to mitigate the effect of inflation?

So instead of just focusing on making more money within your country, a smarter approach is to build a career or business that affords you to make money independent of your local economy.

Smart entrepreneurs either build businesses without national boundaries or they expand their local business across different countries. You can see this in the growing trend of African startups expanding across other African countries; and technology-driven businesses that are not limited by location.

YouTube content creators, bloggers, freelancers, and internet marketers fall into this category. The point is that it is possible to live in a developing country and get paid to offer services to a global market in dollars.

2. Save more money

The next part of the equation to beat inflation is to save more of what you earn. And the only reason to save is to invest. If you save your money in the bank just for the sake of saving, you will always be a victim of inflation and currency devaluation.

It’s counterproductive if your reason to save is so that you can look at your account balance with pride. You are already on the losing side. The reason to save is so that you can invest your money to work for you.

Most people have the habit of adjusting their lifestyle in proportion with their income. The more they earn, the more they spend. If you increase your expenses as your income increases, you are simply robbing your future self of the opportunity to be financially independent. You are eating your seed today against tomorrow.

If you are living in an economy with weak currencies, there are times when spending your money is a better financial decision than saving it. Because, the longer the money stays with you, the less valuable it becomes.

For example, during the COVID-19 lockdown, it was obvious that the price of building construction materials would go higher after the lockdown. The purchasing power of the naira would depreciate after COVID-19.

With this knowledge, I liquidated all my portfolio investment in naira and used it to fund a building project for my family home – a five bedroom duplex.

From my calculation, if I had waited till after the lockdown to start building, I would have to spend up t0 50 percent more due to the increased cost of building materials and labor.

That is to say that saving in your local currency alone can also be counterproductive. If you can, you are better off saving in USD or any other hard currency.

3. Grow your money

We have established that if you live in a country with a weak currency, saving in your local currency is a risky strategy. My solution is to find a more secure way to keep your money so that at least, it retains much of its value over time. In other words, saving in a hard currency is better than saving in naira.

But there is also a problem with this strategy. Even the hard currencies of this world also lose value over time. For example, the US dollar has lost 90 percent of its purchasing value since 1950. The difference is that the hard currencies depreciate at a slower rate than our weak currencies.

Hence, saving in US dollar is not enough if you want to grow your wealth. That is why you need to develop the skill and mindset to make your money work for you.

There are a number of fintech companies offering products for Nigerians and other Africans to invest in global assets in dollars like the stocks, real estate, Eurobond and cryptocurrency market. There is an especially growing trend for investors in cryptocurrency.

The crypto market offers a variety of investment options open for everyone to participate. You can choose low risk investment strategies like investing stable coins to earn 10 to 25 percent interest per year. If you have more appetite for risk, you can choose high risk investment strategies like trading, holding or staking volatile crypto assets for the possibility of massive gains and huge losses.

Historically, major cryptocurrencies like Bitcoin and Ethereum have proven to appreciate in value over time.

Yes, investing in cryptocurrency is risky. It’s not for the faint hearted.

But, do you know what else is risky?

…Leaving your financial life to the mercies of a weak and unpredictable economy. Not to mention a politically unstable environment.

Many people just go about their lives without realizing how much they are losing from how the financial system works. And many who know feel they are handicapped from doing anything about it.

The purpose of this video is to let you know that you are not handicapped. In fact, with the internet and the amount of information and opportunities out there, you can choose to continue losing financially or not. I hope you make the choice that is in your best interest.