3 Ways To Protect Your Money Against Inflation In Nigeria

To inflate something is to increase it by a large amount. Inflation isn’t your friend, read up to find out how to protect your money against inflation in Nigeria.

In Economics, it is an estimate of the rate at which a decline in purchasing power occurs. This decline in purchasing power is reflected in the increase of average prices of goods and services in an economy over a period of time.

In simpler terms, inflation is a situation were you need a lot of money to buy very little. It is the overall general increase in the prices of goods and services over time. Furthermore, it shows the decrease in the purchasing power of a country’s currency like the Naira.

Easy to understand right? Here is a small illustration;

(a) In the year 1990, a cup of coffee cost ₦100

(b) In 2000, the same cup became more expensive and cost ₦250

(c) In 2010, that cup of coffee of the same quantity cost ₦400.

(d) In 2020, this cup of coffee now went for a whooping ₦550

What you are looking at is inflation taking root in over three decades. The same quantity of coffee is getting more expensive. This means that if you were saving ₦100 in 1990 with the intention to buy a cup of coffee, you would have to add an additional ₦450 in order to afford it in 2020.

This is because inflation has hit the cup of coffee by 550%. Sad yeah?

Inflation works in two ways. It can be both a blessing and a curse. A blessing on commodities like land, as it increases its value. And a genuine curse on the currency as it devalues its power. The value that a ₦100 note offers suddenly becomes too small, and almost irrelevant because you would need much more to acquire.

How Inflation Has Progressed Over The Years In Nigeria

Inflation lives here. Nigeria’s inflation has been higher than the average for African and sub-Saharan countries for about a decade. What’s worse? There seem to be no indication in sight of a decrease. The bigger problem is the fact that it is not consistent. An inconsistent inflation rate like Nigeria’s is usually a sign of a struggling economy, causing prices to fluctuate, and unemployment and poverty to increase.

The consumer price index (CPI) that measures inflation increased to 18.17% in March 2021. This is 0.82 points higher than the rate recorded in February 2021 which was at 17.33%. This research showed that the drastic inflation occurred on food and consumer items in the following.

Want to hear something shocking? The reality on the ground is far worse than what is presented on these reports. In fact, we had to write an article about how disconnected policy makers are from reality. But let’s just play nice and act like these numbers are remotely true. Shall we?

According to CBN inflation metrics excel sheet, we can see the danger Nigerian currency is in. The ₦ inflation rate has scaled above imagination with an increase of 33.4% from the whole of last year and this happened in the first 6 months of 2021.

Why Is This Happening?

In Nigeria, major causes of inflation include higher taxes as there has been a recent increase in taxes in Nigeria especially on imported goods. This discourages importation of goods and it discourages investors who may want to establish businesses in the country. This causes scarcity of goods and so leads to an increase in prices, thereby causing inflation.

Other causes of inflation are: Increase in public spending, bad government policies, money hoarding, price rise in international markets etc. These factors lead to rising prices. A researcher by the name Orahachi tested to see how bad the situation was, a 10% compound interest rate against the inflation rate for 20 years was applied to his savings and it still didn’t catch up with all the money that had been saved up prior to that time.

How To Protect Your Money Against Inflation In Nigeria

(a) Never Save, Invest

Yes, you heard me. In this economic melt down, if you are saving in ₦, you are doing yourself harm. Because that ₦10,000 that seemed tangible in 2011, is now less tangible in 2021. Therefore, never save but invest. Invest in Fintech companies that can offer great interest rates and have a good business model. The key thing to look out for in investment is an interest rate not less than 8%. Anything below 8% will leave you behind the inflation rate.

You can also invest your money in bonds in order to protect your money against inflation in Nigeria. Bonds is a loan from you to a company or government that is paid back with a fixed interest over time. The worst hit by inflation are savers who will see the value of their money erode. Because the rate of Nigerian inflation far outpaces the regular interest rates banks offer. OG Capital is one highly recommended Fintech start up to invest in.

(b) Earn In A Stronger Currency

A young man earned a salary of ₦500 in 1990. This salary was equivalent to $700 at that time. However in 2010 he earned a salary of ₦78,000. Before you rejoice, the dollar equivalent to his 2010 earning was $500. Apparently, he got poorer with time.

The only way to avoid this is to earn in a currency stronger than the Naira, a currency that is cheaper in comparison to the worlds base currencies and can transact in the global market. Everybody who earns and spends in the Naira is affected by a steep inflation rate. Salary earners in most organizations have to wait two years or more to receive a bump in their pay. But you can earn in dollars through freelancing, Forex trading and other virtual and remote jobs.

(c) Store Your Money In Appreciating Commodities

Here is another story of a young lad in the 1990s that also earned N500. He was advised to purchase some plots of land at the cost of ₦2,000, and he did after 4 months of frugal saving. 20 years later when inflation hit the economy, that plot of land had appreciated to ₦ 1.5million. He had succeeded in beating the inflation. To protect your money against inflation in Nigeria, buy commodities that have a tendency to appreciate in value like land, real estate, mineral resources like gold, diamonds, etc.

Other commodities of value include shares and stocks. Shares are investments made in companies that yield yearly dividends. When you buy stocks or shares in a company, you gain partial ownership in the business.

Lastly, gain financial intelligence. The best you can do to gain financial freedom is to get financial intelligence. It’s the way to protect your money against inflation in Nigeria and be truly wealthy. Understand how money works and get advise from financial professionals to guide you through. A person with no financial intelligence will go down the same tunnel as the Naira.

Meanwhile, you can look below to find some of our recent articles specially curated for you;

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