Four Steps (e-DEM) to deal with inflation.

by Janet Chang October 2, 2022

Inflation is hardly a new topic since it is associated with the use of fiat currency, notes without intrinsic value. For example, we can simply compare the price of a dish today to that of 50 years ago. Although inflation is not new, the acceptable level is usually under 2%. Therefore, the recent 10% inflation would not only increase daily expenses but also crowd out other expenses. A family that lives on the margin of income would be forced to cut out grocery expenses, as other expenses, such as rent and energy bills, are less flexible.

Many may count on the ease of inflation rate. However, the ease of inflation simply means that the price would not increase as much and fast (e.g. 10%), not a lower price. In other words, the high price level will be here to stay for a while. We must learn to deal with the high price level and adjust to it.

It is uneasy to deal with the lasting high price level alone. Unfortunately, many experts are hard to reach, and their advice is often not for families/individuals in need. In this article, we summarize our experiences into four general steps that one can apply. These steps are not magic and cannot achieve desirable outcomes overnight. However, if determined to take steps patiently, everyone can improve personal financial positions and take life back in charge gradually.

We call the four steps e-DEM (evaluate-Discover-Expand-Manage). Here are the details.

Step 1. Evaluate (the situation).

This step aims to evaluate the current situation. Before then, we must understand ourselves, the key to all improvement. Remember that we are the key player in the current situation. Therefore, we must evaluate our resources, expenses, and expected gains and losses. Prepare for the worse while hoping for the best. That means not being overly optimistic when evaluating expected gains. The more honest we are to ourselves, the more accurate our evaluation will be, and the better we can prepare for the next.

Then, we have the information we need to calculate how fast our savings have reduced/debts have increased, as well as the amount of time we have before running out of resources. This is followed by re-prioritizing the tasks that suit us and the current situation the better. Not to forget that our resources include our health, time, and supporting system. Review and change the priority whenever necessary. Whatever suits you is the best answer at the time.

Step 2. Discover (alternatives/opportunities)

This step aims to find alternatives, be it resources, expenses, or methods/ways to deal with things. An open mind that is playful, creative, and innovative is the key to exploring and discovering more possibilities. The tasks include discovering the resources/expenses/methods needed for new possibilities. The changes in situation create new possibilities that are upon us to discover them. For example, the success of many start-ups is attributed to overcoming lockdown inconvenience.

The ideas may not be new. It could be a dream in your heart for a long time or what inspires you the most. Anytime when getting stuck, take a talk, and let nature inspires you.

Step 3. Expand experiences.

This step aims at learning by doing. Focusing too much on the current situation could narrow our minds, and hence, limit our imagination and prevent us from looking beyond the box. The key element in this step is curiosity. Trying new things and having new experiences, such as new exercises, new ways to make things…etc, expand our minds to different dimensions. Remember that any new experiences must not be harmful to anyone, including ourselves.

For example, many successful shops start by making new dishes or drinks. They either use different ingredients, ways, or combinations. Their success is because they tried.

Step 4. Manage Risks.

This step aims to reduce possible damages associated with the decisions that we made. Every option has risks, including the status quo. While hoping for the best, we must prepare for the worst.

Some risks are manageable and/or may be overseen; some are not manageable and cannot be overseen. Knowing what risks are not manageable and/or cannot be overseen is an important task of risk management. That is because we are learning our limits, as well as when to accept the facts and move on to the next phase of life. For example, the supply chain disruption and the pandemic lockdowns have caused damage to many businesses and led some to bankrupt. Current volatilities of currencies show the need to manage exports and imports.

Calmness is the key attitude in this step. Remaining calm helps us better manage risks while not being overwhelmed by them.

Whatever decision we make, remember that there is no single solution for all. The best decision for others may not be suitable for us. Despite similarities, every situation has its uniqueness. We learn ideas from others, but without thorough examination, it is unwise to follow others.

If you have any questions while following any of the steps, or need more information/details, feel free to contact us, Economic & Financial Freedom Institute, at info@effreedom.com. The first consultation (approx 30 mins) is free.