The post-pandemic world has left many struggling financially and questioning what their navigational strategy should be in an environment of double digit inflation and rising interest rates. And while no one can say for sure how long these uncertain times will last, we can take comfort in the lessons of history that show that times like these are cyclical with an eventual end.
In the meantime, there some core strategies we can consider to build our financial knowledge and resilience:
Make sure your money is working for you
With inflation ranging from 7% to 9% it becomes increasingly important that any savings that you do have is earning a decent rate of return. Money sitting in an account paying 1% while inflation rages at 7% means your money is actually decreasing in value by 6%. Shop around for the best rate of return. Sites such as Ratehub.ca provide up-to-date comparisons of the highest returns that each financial institution is paying. Remember to minimize tax on these earnings through TFSA’s and RRSP’s.
Take an inventory of all your debts
Determine your highest interest charging debt along with any variable interest rate debt. While investing money may be a good strategy for building equity, it may not be your best strategy if you are carrying any high interest charging loans or credit card debt. Start by paying off the debt with the highest interest followed by variable interest rate debt that is likely to become costlier as interest rates rise.
Review your investments
Negative news headlines may make for compelling press, however predictions of an impending financial apocalypse may not provide a true picture of what is happening or likely to happen. Consider current situation in a historical context. Stock market averages have had plenty of ups and down over the past 100 plus years, triggered by numerous macro events, but over the long term, the direction has been upward.
Assess your investment profile
Time horizon, risk tolerance, and return expectations will play an important role as to how you manage your investments throughout uncertain times. If you may need to access money from your investments in the next 5 years, you may want to consider ensuring some of your investments are in liquid assets that provide predictable returns such as guaranteed investment certificates (GIC’s) or term deposits. Investments in less volatile equities such as utilities and telecoms (or Funds that hold these type of stocks) may also provide some protection from volatility, while also providing dividend income.
Prioritize any large ticket purchases
Supply chain disruptions, pent up buyer demand and rising energy prices have contributed to large price hikes on many large ticket items. Consider which items are essential to have now and which can be delayed until prices stabilize, or in some cases fall. You may find getting another year out of an aging car, older model cell phone, or home appliance may help you preserve cash for more pressing expenses.
Build a reserve fund
While everyone should strive to build at least a 3 to 6-month emergency reserve fund, for those in industries with fluctuating work such as the film industry, it becomes even more imperative. In addition to preventing you from having to dip into long term savings or taking on debt in times of employment disruption, it can greatly reduce the stress of not knowing where your money will come from if you are temporarily without work.
Do an expense audit
With certain expenses such as food costs rising even faster than overall inflation, it may require cutting back in other areas. Review all discretionary expenses to see if there are some that you can do without: Pandemic purchases such as streaming services, gaming or magazine subscriptions, club memberships, etc. can all add up. While some of these pandemic expenses may have served their purpose, it may be time to let them go.
Facing our personal financial situation and managing our finances can feel overwhelming for many of us. If you need support with your personal budget, spending, and financial plans, check out the resources listed below.
Guest blog post by:
Murray Baker, Manager, Financial Empowerment and the Money Skills Program
Family Service of Greater Vancouver
Financial Supports & Resources:
Financial Empowerment, Family Services of Greater Vancouver
The Financial Empowerment program at FSGV teaches financial literacy and helps people navigate government benefits. We envision a community where people are empowered to make the most of their money.
· No cost Financial Coaching: Our free coaching service is available to individuals, couples, and families. Unsure whether you qualify? Give us a call and we’ll figure it out together: 1 800 609 3203
· Free Money Skills workshops: visit our website and subscribe to our events calendar to be notified of upcoming workshops https://fsgv.ca/events/tag/financial-empowerment/
Mint App Mint.com
Mint is the Canadian money management app that brings together all of your finances, from balances and budgets to credit health and financial goals. Reach your goals with personalized insights, custom budgets, spend tracking, and subscription monitoring— all for free. Easily see your monthly bills, set goals, and build stronger financial habits. (Free and paid versions)
Your Financial Toolkit (Government of Canada).
A comprehensive learning program from the Financial Consumer Agency of Canada that provides useful information and free tools to help you manage your personal finances and gain the confidence you need to make better financial decisions.
Dealing with Debt Toolkit (PDF) https://learninghub.prospercanada.org/wp-content/uploads/2019/04/DWD-AllWorksheets-2019-04.pdf
This booklet provides a set of activities to help you manage your debt and provides tips on how you can reduce it. The worksheets can help you identify your money priorities, calculate what you owe and strategize how you can pay it back, even if you have a fluctuating income.
EAP/MAP Financial Coaching Services
If you are part of a union health plan with an EFAP/MAP, ask about their financial counselling services.
For BC Union plans visit out Union Benefits page.