From The Straits Times    |

Hands up if you’ve uttered the following at least once in the past few months: “OMG, everything is so expensive these days. Did you know that I paid [crazy amount] for [this seemingly mundane thing]? Unbelievable.” 

Whether you’ve been directly impacted by increasing mortgage rates or by the rising costs of day-to-day necessities, it’s no secret that inflation has negatively affected our lives. 

To counter the effects, most of us would have curbed our spending – according to the Her World What Women Want survey 2023, where we asked 800 respondents about their relationship with money, we learnt that 92% reduced their spending because of inflation. Of these, 75% reduced their spending by 5-20%.  

Tweaking our lifestyle habits to accommodate rising prices stinks, to put it mildly. 69.9% of the Her World respondents mentioned that compromising on their lifestyle is a deterring factor when it comes to reducing their spending. 

But here’s the kicker: Despite your sacrifices, simply reducing the amount you spend is not enough to beat inflation and safeguard your future. 

So what does this mean? In a nutshell: If you’re still earning the same salary as you did one year ago, then essentially, you’ve taken a pay cut. 

But here’s the kicker: Despite your sacrifices, simply reducing the amount you spend is not enough to beat inflation and safeguard your future. 

Anarane Thng, manager of commerce contract at Robert Walters Singapore, explains that not accounting for inflation can have a negative impact on your financial health. 

“In the short-term, [one might see] a decrease in purchasing power and the individual may be unable to afford the same standard of living. They may need to cut back on expenses, reduce savings, or even take on debt to make ends meet. Long-term [repercussions include an impact on] financial security and retirement planning. 

“It might be difficult for the individual to plan and save for retirement, invest in assets, and/or pay off existing debts. Overall, a lack of salary adjustment can lead to lower net worth and financial instability.”

So Sin Ting, chief client officer at Endowus, paints a dire picture: “The purchasing power of cash will get eaten away by inflation over time, which means less for us to spend in the short term. In the long run, leaving money idle in the bank significantly increases the risk of our cash running out earlier, leaving little for retirement.”

And unfortunately, as is the case with most global events, women might end up bearing the brunt of inflation more than men if we don’t take action.

This can be directly attributed to a couple of factors: For one, women are not as financially savvy as men. The Her World survey found that 30.4% of respondents said that they don’t invest monthly because they lack financial knowledge. This knowledge gap has a ripple effect on how women respond to global events such as inflation, and the steps they take to protect their wealth and safeguard their future. 

This is a sentiment echoed by Endowus, which recently launched its Wealth Insights Report. According to its data: “Not enough women are keeping up with inflation rates.”

Women tend to be more risk-averse, and do not invest as much as men. Says Sin Ting: “Females are more likely than males (62% vs 47%) to preserve capital by taking minimal risk, but that risk aversion will quickly lead to an erosion of their savings, if the inflation rate exceeds the interest rates in their savings account. Effectively, women are losing money by only parking money aside as savings, as opposed to investing it.” 

So what can we do? 

While reducing spending is recommended, you also need to make sure that you have enough saved in your bank account. Then, once you’ve set aside that magic number, look at ways of making idle money grow: Even in non-inflationary periods, experts recommend putting your money in investment vehicles as the interest rates of ordinary savings accounts simply cannot keep up with inflation rates. 

Sin Ting explains: “For example, deposits saved across 20 years on average bank deposit rates would lag inflation by about 35%. That means $50,000 saved in cash would become $53,406 in deposits after 20 years, compared with the $81,930 needed to beat the assumed 2.5% inflation rate – a difference of over $28,000. If you had invested in financial markets and generated 5% per year, then the same $50,000 would be worth $132,665.” 

So what you need to do, then, is to make your money work for you and, as Sin Ting puts it, “let the power of compounding work its proven magic”. She suggests growing and managing your wealth by first outlining your short- and long-term goals. 

“The best long-term solution to inflation is not just to save fastidiously, but to also take a long-term view on retirement planning and investing.

“Look at your future needs or goals first, then try to figure out what actions you need to take now in order to get there. This means matching the investment horizon of financial goals – whether it’s saving for a rainy day, your children’s education, or retirement – against the risk levels of those investments, which will help us remain invested to hit longer-term goals,” she explains. 

She also dispels the myth that one needs to have a lot of money before investing. “What’s more important is taking that step to get started, and then being disciplined with a dollar-cost-averaging approach.” 

Some experts suggest putting aside monthly recurring investments, so you take the stress out of timing the market. This way, by investing a small amount every month, you average out your investments. Sin Ting has noticed that “more female than male investors perform recurring transactions into specific products. These female clients have inculcated the discipline and practice of putting a little aside for monthly recurring investments, to remain in financial markets over the long term”.

“This strategy ensures that women invest manageable amounts they are comfortable with – in a structured, automated way that takes the emotion out of financial decisions – allowing them to reap the benefits of compound interest that comes from time in the markets, and not timing the market,” she says. 

Making more money

There’s another strategy you might want to consider as well: increasing your revenue, whether by scoring a side hustle or by getting a salary increase. However, it’s not that simple. According to the Her World What Women Want survey, salaries have not kept up with rising inflation rates. Only 19% of respondents said that their salaries had been adjusted for inflation. 

According to Antoinette Oglethorpe, director of training and coaching company Antoinette Oglethorpe, many women refrain from asking for pay raises for the fear of seeming pushy and demanding. 

She adds: “Women may worry about damaging their relationships with their bosses or co-workers. They may also fear that asking for a raise will result in negative consequences, such as being seen as difficult or ungrateful, or even being penalised with a lower pay increase or fewer opportunities for promotion. 

“Moreover, women may lack confidence in their abilities or the value of their work, which can make it difficult for them to advocate for themselves in the workplace. They may also be less likely to ask for a raise if they feel they have not yet fully mastered their job, or if they are not sure of their worth to the company.” 

She elaborates that these factors are not limited to women, but “research has shown that women are more likely to experience these barriers when it comes to negotiating for pay raises”. 

But given what we know about the crippling effect of inflation and its long-term repercussions, not asking for a pay raise can be damaging. 

Robert Walters’ Anarane suggests: “In general, salaries would need to increase by at least the same percentage as the inflation rate to maintain the same purchasing power.” 

So what’s the best approach? While it’s tempting to demand for better compensation, this strategy is unfortunately unlikely to work. 

As career coach Cindi Wirawan cautions: “Asking for a raise solely because of inflation may not the best approach because you may only be given a pretty small increment based on the inflation rate which is currently projected to trend at 3.5%.”

She suggests preparing for the conversation beforehand by doing your homework: “Do your research on salary trends and market rates in your industry using external sources like My Careers Future, Linkedin and Glassdoor. Then, make sure you have evidence of the value you have brought to the company, such as your achievements and contributions, an increase in your job scope and responsibility, or new skills you have picked up so that you have a strong case for why you deserve a raise (it cannot be just because of inflation!).” 

Antoinette also advises to “have a backup plan, and be open to other forms of compensation”. 

And lastly, choose your timing, and be mindful about the situation at your company: For example, approaching your manager for a pay raise the day after the company has had a round of layoffs might not be realistic. 

“If your company has recently gone through layoffs or is tightening its purse strings, asking for a pay raise may be more difficult,” says Antoinette. “It may be better to wait until the company is in a better financial position. However, you can still ask for feedback on how you can improve your chances of a pay raise in the future.

“If you feel you really can’t wait, the best approach to asking for a pay raise during a difficult financial period is to be sensitive to the company’s financial situation, while still making a compelling case for why you deserve a raise, and being flexible. Understand that they may not be able to grant you the full pay raise you are asking for, but be open to alternative forms of compensation such as more vacation time, flexible work arrangements, or a bonus,” she adds. 

Ultimately, though, as Robert Walters’ Anarane advises:“Overall, whether to wait for the salary adjustment cycle or ask for a salary hike now depends on the individual’s situation and relationship with their employer. If an individual decides to ask for a salary hike outside of the cycle, approaching the conversation strategically and professionally can increase the likelihood of a positive outcome.”