FLI, personal finance, management, inflation, advice
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In a conversation with Emilia Antova, journalist at the newspaper Third Age, Rositza Vartonik commented on some prudent strategies for managing personal finances in a context of rising inflation.

On the current situation and rising inflation

We cannot expect good news in the near future. Over the past year there was a recovery in economic activity, but the war in Ukraine has halted this development. On a personal level, this has a severe impact on people.

On the emergency fund

Standard recommendations suggest that people should have savings set aside specifically in an emergency fund sufficient to cover living expenses for three to six months. The exact amount depends on one’s personal situation. At the same time, it is important to consider something else as well—how to build a “protective wall” around the household budget.

The emergency fund helps in urgent situations. But there are also cases that are difficult to handle with emergency savings alone. For example, flooding is not a rare occurrence. If your home is flooded, a substantial sum is needed for repairs, and the question is where that money will come from. This is why we should also consider additional protection provided by insurance.

On the need for further tightening of the household budget

In fact, we are already tightening it—everyone feels in their pocket how prices are rising. We need to realize that this situation will not end in the coming months. That is why it is wise to start thinking now about how to manage the household budget in an environment of rising prices.

On strategies during inflation – should we spend the money we have, or keep some for a rainy day even though inflation will erode it?

It is very risky to be left with nothing. If we find ourselves with no savings, no insurance, and something happens—to our lives, our health, or our homes—we will end up in a very difficult situation. Therefore, the first priority is to secure that protective wall around our finances. Only then, if we have additional savings, can we think about where it is reasonable to invest them.

If we are going to spend money now, it is best if it is on something that will save us money in the future—for example, energy-efficient renovations such as new windows, insulation, or energy-efficient appliances. This is a sensible investment because it will help reduce household bills in the future. We need to recognize that energy and raw materials will continue to become more expensive, and this will inevitably affect everyday household expenses.

On “consumer composure” and stockpiling products as a form of saving

Yes, this can be considered a form of saving. We see prices rising, but we cannot stock up for years ahead. We can buy longer-lasting food products, which may save money over a shorter period—three, six, or eight months. However, we should be prepared for the fact that prices are unlikely to fall over the next one to two years, and stockpiling now will hardly provide a long-term solution.

On reviewing household spending

Start with luxury items—and “luxury” means something different for each family. For some it means traveling abroad or weekend trips, for others dining out, and for others certain food choices. It depends on lifestyle and financial capacity. But first, we eliminate what we can live without.

On possible investments

The world of investments is very broad—financial instruments, real estate, business. Savings kept in bank deposits lose purchasing power due to inflation. If we are looking for ways to invest these funds, we must remember one rule: never invest in something you do not understand. If we decide to move in this direction, we need to inform ourselves well and seek advice. We also need to be aware that every investment carries the risk of losing part of it—or all of it—over a certain period of time.

On where to keep savings – at home or in a bank

In both cases, you lose money because of inflation, but keeping cash at home carries the risk of theft. Everyone must decide which risk they are willing to take.

On possible actions if expenses have already been reduced to a subsistence minimum

If we anticipate that our income will not be sufficient and we have already done everything possible to limit spending, we should not wait until the last moment. Now is the time to look for ways to increase income. This is a difficult decision and not always easy to implement, but one can consider additional work, retraining, or relocating to a city where higher-paid jobs are available. The options are as diverse as individual situations. The key is not to wait until the situation becomes critical, but to take preventive action in advance.