How to Fight Inflation in Canada (In 5 Easy Steps) – Forbes Advisor Canada
Feeling broke lately? You’re not alone.
Due to a range of factors, including supply chain issues following the global lockdown of the Covid-19 pandemic and the Russian-Ukrainian conflict, inflation is making all types of goods – from groceries to petrol – much more expensive than a few were months. In June, Inflation reached 8.1%the highest annual increase since the 1980s.
While not exactly at its peak, inflation is an unavoidable reality for all Canadians. Regardless of economic conditions, the prices of goods will increase over time, and your money will buy less than it used to. The amount that occurs (expressed as a percentage) is the inflation rate.
Inflation really starts to affect the average Canadian when the rise in the price of goods outstrips the rise in wages and your purchasing power is affected. When inflation hit 8.1% in June, hourly wages increased by just 5.2%.
How to hedge against inflation
So what can the average Canadian do about these rising costs? Fortunately, you don’t need to get a finance degree or hire a financial advisor to deal with inflation problems. In fact, advisors recommend using the same sensible money-saving tactics they share in boom times, such as B. tracking expenses, fighting debt, and avoiding risky investments.
If you’re not already using these tactics, the climate we’re in right now is reason enough to incorporate them into your financial life, says Vanessa Bowen, a chartered accountant and founder of holistic money site Mint Worthy.
Forbes Advisor spoke to five money experts to share their best strategies for fighting a more expensive world. Here’s what they shared.
1. Keep track of your expenses closely
Budgeting is the number one piece of advice from personal financial advisors everywhere, but sticking to a rigid plan is harder than ever. How do you stay within a given limit when prices from milk to Mercedes are increasing every month? While you might be able to wait before buying a Benz, the prices of essentials like groceries and gas have also gone up.
“Eating is an expensive habit,” says Kerry Taylor, financial journalist and founder of financial site Squawkfox. “And it’s not something we can take out of our budget – we have to eat. When we go to the grocery store, inflation hits us back.”
While you can’t just buy less groceries, going to the grocery store armed with a list and your calculator app can help you save. When you consider unit prices, that’s the cost per measurement, typically around 100 grams at grocery chains like Food Basics or Metro, you can get more of your favorite foods for less.
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Taylor says that the results of a little math are often surprising. Family deals can be more expensive than smaller purchases, and sometimes that’s on purpose. Shrinkflation, where brands shrink the size of a product but keep the price the same, can bite.
“If you can do a little math,” says Taylor, “then you can beat shrinkage.”
2. Deal with debt as quickly as possible
Canadians owe a lot of money. In fact, StatsCan estimates average consumer debt $1.73 in consumer credit and mortgage debt for every dollar of their income. This high debt-to-income ratio isn’t new, but the Bank of Canada’s is current overnight rate of 2.5% (that’s 10 times higher than at the end of 2021) raises interest rates on loans, which means that paying off this debt becomes even more expensive.
And of course inflation means there is less money left to pay off your loans. “When you spend more money on groceries, rent and gas for your car, there is less money left to service your debt,” says Doug Hoyes, co-founder of Hoyes Machalos, a large Canadian personal bankruptcy firm. His first tip for weathering inflation, unsurprisingly, is to tackle consumer debt as soon as possible to avoid the snowball effect when interest rates overwhelm your finances.
If you have multiple debts, Hoyes suggests tackling the one with the highest interest rate first. This means a payday loan repayment that could have corresponds to an interest rate of 500%should take precedence over a credit card with a standard rate of 19.99%.
Once you get rid of your biggest debt, turn your attention to the one with the next highest interest rate.
But what happens if you can’t pay it all back?
If cutting back on your expenses or getting a side job isn’t enough to destroy your debt, asking your bank for a balance transfer offer can help.
The premise is simple: if you transfer a balance to your credit card up to its limit, you can keep it on the credit card for six to 12 months at 0% interest. “To use something like this in this climate is amazing,” says Bowen. “That way, you can still pay off your debt faster, without the crazy interest rates.”
3. Use cash back credit cards or bank accounts
Earning cash for essential expenses like gas and groceries can be an easy way to put money in your pocket. Bowen agrees: “It’s how you make sure every dollar you spend comes back to you in some way,” she says.
Typical cash-back credit cards return around 1% to 2% — not much, but certainly better than nothing. However, some cards can give you up to 5% back on groceries, for example, and others have welcome offers that give you 10% back for the first few months.
If you decide to use the credit card, Bowen says you should keep all of your day-to-day expenses on it to maximize profits. Bowen and her husband use one for their own expenses. “About every two months we get maybe $100 to $150 cashback to redeem,” she says. However, make sure to do your research and avoid overspending. Your cashback won’t really be a win if you end up paying interest charges or a hefty annual fee.
If a credit card isn’t the best option for you, Bowen recommends something like the PC Money account. Customers can buy groceries, make a monthly mortgage payment, or deposit money with a PC Money Account card, which works like a debit card. However, it only works where Mastercard is accepted.
Even better, the card gives 10 PC Optimum points per dollar spent regardless of where you shop, or 25 points if you shop specifically at Shoppers Drug Mart. Perhaps most importantly in our high-interest times, you can’t jeopardize your credit rating or rack up expensive debt on the PC Money Account card. It won’t counteract all of inflation’s purse-scouring effects, but it will soften the blow.
4. Learn to love vouchers
You probably need all the help you can get with your grocery bill right now. Luckily, big chains like Metro, Loblaws, and Walmart still offer flyers — you might know the ones your parents or grandparents religiously read for the latest deals — but you don’t have to grab a paper copy every week just to see where you’re are can save the most.
Apps like Flipp help you compare prices from multiple stores at the same time from a single screen without leaving your home. “It used to be a lot more work-intensive to sit down on a Saturday and clip coupons out of the local paper,” says Jason Heath, a board-certified financial planner and managing director at Objective Financial Partners, a fee-based financial consulting firm.
Today, he said, coupon apps allow anyone to save on groceries, even on groceries that are about to expire but are still edible. Some of these apps double as shopping lists. Checkout 51 in particular stands out as a cash back coupon app that allows you to redeem offers by scanning your receipts after paying.
Unfortunately, coupon apps also have downsides, as handy as they may seem. Heath says they’re marketing tools to a degree. “Often it encourages you to buy things that you wouldn’t otherwise buy,” Heath said. “Ultimately, I think it’s up to the individual to make sure they stick to their grocery list and ideally have some sort of meal plan.”
5. Avoid volatile investments
Despite the relatively lively development in 2021, inflation is increasing on the world markets. Tech giants like Shopify and cryptocurrencies like Ethereum have lost billions of dollars in valuation over the past year as central banks do Warning of impending recession. But that doesn’t mean the stock market is a complete write-off.
John Sacke, investment advisor and portfolio manager at BMO Nesbitt Burns, said investors should look very carefully at companies with high levels of debt. Interest payments are rising, of course, and a company that owes money is paying it back at a much higher rate than it was a year ago.
His other advice is to pick companies with solid financial performance. “They want to buy stocks in companies that are likely — and I use the word ‘probably’ very cautiously — to do better than other companies in an environment of rising interest rates,” Sacke said.
A utility company, Sacke said, might be more attractive to an investor right now than a tech company or a bank if the latter holds a lot of debt. Investors aren’t likely to see much return if a company’s CEO is forced to spend much of its revenue just to prop up existing debt.
If you want to build a diverse investment portfolio that preserves capital, GICs are also an option. For example, at EQ Bank, customers can secure a 1-year GIC at 4.35%. Because a GIC guarantees a refund of the deposit plus interest, it can be a great way to secure some cash later. In addition, the current interest rate situation is a blessing for them.
But one of Sacke’s most important pieces of advice – something he has taught his clients – can be summed up simply: stay the course. “Markets don’t just move up in a straight line,” he said. “You will get a lot of bumps along the way. And that’s just another bump.”
According to financial common sense
With a likely recession on the horizon, it’s easy to panic and assume you’ll need to find a brilliant hack to survive these inflationary times with your finances intact. But tried and true financial wisdom will suffice.
Even if inflation conditions are improving at the time of reading this article, consider adopting the above suggestions to stay on track. Bowen had all of her strategies in place before inflation started, so she’s not stressed.
“If we incorporate these things into our lifestyle, then by the time we see the economy change — by the time we see inflation change, we’re already primed,” she says. “And we don’t have to try to change things.”