Economic Trends: The Impact of Global Events on Your Finances

You may not think that global events affect your personal finances but the truth is they can have a significant effect on your savings, spending ability, and the cost of living. Of course, the events of the last few years have made it more obvious how global events impact your finances.

Impact of Global Events on Inflation

Inflation is a marker of how much the price of goods and services increases over a period. For example, if inflation is at 10%, something which cost $10 a year ago will now cost $11. While you’re accustomed to the price of goods consistently rising, the real issue with your spending power is when the inflation rate is higher than your wage increase. For example, a 10% inflation rate increases the cost of everything you buy by 10%. If your wage only increases by 5% during the same period, you won’t be able to afford everything that you could a year ago. In short, you’ll be worse off.

Governments generally like to keep inflation low. However, it’s difficult for them to control inflation. The price of goods rises when they are in short supply. This has been evident in recent years by the decrease in the availability of oil and food, thanks to the Russian invasion of Ukraine. It’s pushed prices, and therefore inflation upwards.

Impact of Global Events on Interest rates

Governments and central banks can’t directly control inflation. Instead, they use interest rates to help maintain economic growth and minimize the inflation rate. It’s a balancing act. Higher interest rates mean it’s more costly to borrow money which discourages people from spending. By contrast, low interest rates encourage spending but low interest rates are not good for savers and investors.

The bank will increase interest rates to discourage spending. This reduces demand for goods and effectively lowers inflation. Personally, you’ll find borrowing is more expensive and it can be difficult to meet your mortgage payments and other financial commitments.

Impact of Global Events on Economic Downturns

When inflation gets out of control and the bank raises interest rates, the economy will be stifled. Many businesses will struggle. This can lead to job losses. Over time, the reduction in employment opportunities will lead to an economic downturn. You’ll directly feel this one as your job will be at risk. Even if you maintain your job, it’s likely that you’ll have less bargaining power and be unable to command an inflation-matching pay rise. You can stop an economic downturn but you can be prepared by building an emergency reserve which will help you manage during uncertain times.

Market Changes

You probably don’t invest in the stock markets or even worry too much about what they are doing. However, the truth is share prices are constantly fluctuating as local and global events affect businesses. This volatility is what investors count on to generate returns on their investments.

However, the volatility also means losses can be made. Those losses can be on pension funds and other investment portfolios. You may not actively manage them, but your pension and other investment savings are reliant on good market returns. Volatility and significant individual events can damage the value of funds and the money you receive in the future. While you may not be able to control market changes, you can monitor them to help ensure your funds are generating the best returns possible.

Protecting Your Finances

Some events are beyond your control. However, that doesn’t mean you can’t take steps to protect your finances. The following will help:

Summing Up

Local and global economic trends will affect your personal worth. That’s the standard of living you can expect when you retire and your ability to purchase things today. It’s important to understand how global events can affect your personal finances. This will allow you to monitor the events and prepare as best as possible for them. This is one time when being proactive will pay off.

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