Inflation has not been far from the headlines in 2022, as the rapid rate of rising costs has been at the forefront of the public consciousness this year.
According to the Office for National Statistics (ONS), inflation reached 10.1% in the 12 months to July 2022, the highest rate of growth since 1982.
Even more worryingly, as reported in the Guardian, the Bank of England (BoE) has forecast inflation to reach 13% by autumn.
So, find out what inflation is, why it may matter particularly to you as a rugby player, and what you can do about it.
Inflation measures the rising cost of goods and services
Inflation is a measure of the cost of goods and services relative to prices in the year before.
The Consumer Prices Index (CPI), where this 10.1% rate comes from, uses a set “basket” of typical consumer goods to work out how much prices have risen. This basket includes:
- Common food staples, such as bread, rice, and pasta (24% of the basket)
- Recreation and culture (17% of the basket)
- Clothing and footwear (12% of the basket)
- Furniture and household goods (10% of the basket).
Of course, your personal rate of inflation may be higher or lower, depending on your specific spending habits and how much of each item you have bought in the past 12 months.
Inflation could affect you more as a rugby player
Inflation will most likely affect everyone in the UK, from individuals to businesses, as the cost of purchasing goods and services climbs rapidly.
However, as a professional rugby player, you may be particularly at risk from rising inflation, especially depending on where you are in your contract.
For example, if you signed a two-year contract in 2021 with a fixed wage structure, your money is technically losing value in real terms.
In theory, an inflation rate of 10.1% means goods that would have cost £1,000 last year would now cost £1,101.
So, if your wages have been fixed for the past year while prices have risen like this, it means your money can no longer buy you as much as it could last year. You will still have another contracted year left to contend with while this continues to happen, too.
The longer you go without an opportunity to renegotiate your pay, the less spending power your money will have. That means if you are in the first year of a longer contract for perhaps three or five years, this effect could be even more severe.
Inflation will likely not rise by 10.1% every year of your contract. Regardless, it shows the importance of taking steps to safeguard your money from the effect it can have.
Investing your money can help to reduce the eroding effect of inflation
Fortunately, this eroding effect that inflation can have on your money is not entirely unstoppable.
The BoE, the central bank in the UK, has raised interest rates in recent months to try and curb rising inflation. Indeed, you may have read our previous blog on how rising interest rates might affect you.
Aside from government policy, there are also things you can do to limit the eroding effect inflation could have on your wealth.
One of the most common ways to do this is by investing your money, rather than simply saving it.
Interest rates in the UK are rising with the increases from the BoE but, according to Moneyfacts as of 25 August 2022, the highest rate available on an easy access savings account is still just 1.86%. This is far below the current rate of inflation.
Meanwhile, investing your money gives you the opportunity to generate a greater return that can see it keep up with, and even outpace, inflation over time.
According to data collated by investment provider IG, investments in the FTSE 100 (an index of the 100 largest companies in the UK) produced annualised total returns of 7.8% between its inception in 1984 and 2019, assuming dividends were reinvested.
Meanwhile, using the inflation calculator on the BoE website, you can see that inflation averaged just 2.7% a year across the same period.
That means investments in the 100 largest UK companies comfortably beat inflation over that 35-year period. Had rugby been professional in 1984, a player retiring then would have seen their money retain and even grow in value by 2019 had they invested in FTSE 100 companies.
Past performance is by no means an indicator of what will happen in the future. Even so, these figures show the potential that investing has for keeping your money ahead of the curve, given a long enough time frame.
Work with an expert
If you have concerns over how inflation might affect you then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
