Smart Strategies for Saving During High Inflation

In the previous article, we explored why saving and investing are critical, regardless of the economic cycle or inflation rate. This brings to mind a friend who lost tens of millions of naira in the stock market during the 2007 financial meltdown. He vowed never to invest again, choosing instead to enjoy the fruits of his labor in the present while his money still had value. At the time, his decision seemed practical and sensible. However, its flaws became apparent when he saw his colleagues exponentially growing their wealth through real estate investments. Realizing his mistake, he decided to give investing another shot.

High inflation erodes the value of money over time, making it more challenging to build wealth and maintain financial stability. However, with the right approach, you can protect your finances and even take advantage of opportunities during inflationary periods. Here are some smart strategies to help you save effectively:

1. Prioritize Emergency Savings

Before focusing on high-yield investments, your first line of defense is a solid emergency fund. Aim to save at least three to six months’ worth of living expenses in an easily accessible account. This financial cushion ensures that you can cover unexpected costs, such as medical emergencies, job loss, or urgent repairs, without resorting to high-interest debt.

To minimize the impact of inflation on your savings, consider keeping your emergency fund in:

• High-interest savings accounts that offer competitive rates.
• Money market funds that provide better returns while maintaining liquidity.
• Fixed deposit accounts with flexible withdrawal options.

Treasury Bills are also an option, as there is a secondary market for previously issued bills. The challenge, however, is that it may take a while to find a buyer, depending on the bill’s interest rate and your broker. The key is to balance accessibility with value preservation, ensuring your emergency fund remains available when needed while still earning reasonable returns.

2. Balance Liquidity and Growth

Inflation creates a dilemma: keeping too much cash results in losing purchasing power, while locking up all your money in long-term investments may leave you struggling with daily expenses. The solution is to divide your savings into three categories:

• Short-term funds (0–1 year): For emergencies and daily needs, keep cash in easily accessible, high-interest accounts.
• Medium-term investments (1–5 years): For planned expenses like tuition, home renovations, or car purchases, consider treasury bills, commercial papers, or fixed deposits.
• Long-term investments (5+ years): For wealth-building and retirement, explore assets such as stocks, bonds, real estate, and index funds that can outpace inflation over time.

By strategically allocating your savings, you ensure that your money remains available when needed while still working for you.

3. Spend Wisely, Save What You Can

When inflation is high, the cost of living increases, stretching household budgets. The more disciplined you are with spending, the more you can allocate toward savings and investments. To manage your finances effectively:

• Review your expenses and cut out non-essential costs. Some of these cuts may be temporary to help you achieve your immediate financial goals.
• Avoid lifestyle inflation—just because you earn more doesn’t mean you should spend more. The higher your expenses, the bigger your emergency fund needs to be.
• Look for cost-effective alternatives, such as buying in bulk, negotiating for better deals, and switching to more affordable brands.

The goal is to free up as much money as possible to invest in assets that appreciate over time rather than letting inflation eat away at your purchasing power. The more of your income you can convert into assets, the better your cash flow and progress toward your financial goals.

4. Avoid Panic Buying

A common reaction to inflation is the urge to buy goods in bulk or stockpile items in fear of rising prices. While it makes sense to buy essential goods at current prices before they increase, hoarding large quantities of perishable or unnecessary items can leave you cash-strapped.

Smart stockpiling means:

• Prioritizing essentials with long shelf lives (e.g., non-perishable food, household supplies).
• Avoiding unnecessary purchases driven by fear or speculation.
• Keeping enough liquidity to handle emergencies and investment opportunities.

Rather than panic spending, a balanced approach ensures that you maintain financial flexibility.

5. Invest in Yourself

One of the best ways to beat inflation is to increase your earning potential. Investing in yourself is the best investment you can make and should be the foundation of your financial journey. Your skills, knowledge, and expertise can appreciate in value far more than any financial investment. Consider:

• Acquiring new certifications or degrees that make you more valuable in your field.
• Learning high-demand skills such as digital marketing, coding, data analysis, or entrepreneurship.
• Building multiple income streams through freelancing, consulting, or side businesses.

Investing in yourself provides long-term financial security, allowing you to out-earn inflation rather than just keeping up with it. In the era of remote work, you can gain skills that allow you to work part-time for offshore companies, earning in dollars and staying ahead of local inflation.

The local prices of most goods haven’t significantly increased in dollar terms, but they have spiked in naira terms due to exchange rate fluctuations. If a sizeable percentage of your income is in dollars, you will hardly lose sleep over local inflation.

What Happens If You Don’t Save?

Failing to save during inflationary periods exposes you to serious financial risks, including:

• Increased reliance on high-interest loans during emergencies, leading to debt traps. In medical cases, this could prove fatal if you don’t have active health insurance coverage.
• Missed investment opportunities that could have grown your wealth. Economic downturns often present more investment opportunities than periods of economic boom.
• Forced asset liquidation, where you may need to sell essential belongings at a loss just to cover basic expenses. Selling when you’re in financial distress puts you in a weaker negotiating position.
• A declining standard of living, as rising prices reduce your purchasing power over time. Saving and investing create additional income streams that improve cash flow.

Inflation should not be an excuse to stop saving, investing, or working toward your financial goals. High inflation can throw you off balance and push you into survival mode, but you must adapt and move forward. Every problem has a solution.

If you visit some estates, you’ll be amazed at the amount of ongoing construction, despite the astronomical prices of building materials. Individuals, real estate investors, and developers are still building.

The same storm that pulls down trees makes eagles soar. If you adopt a victim mentality and listen to naysayers, you will become paralyzed, and your fears will turn into a self-fulfilling prophecy. As Charles Dickens wrote in A Tale of Two Cities:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…”

In challenging economies like Nigeria’s, the individuals who prepare, adapt, and make informed financial decisions are the ones who thrive. Saving during high inflation isn’t just about putting money aside—it’s about positioning yourself for financial resilience and long-term success.