How to beat inflation in Canada (in 5 easy steps) – Forbes Advisor Canada

Feeling broke lately? You’re not alone.

Due to a number of factors, including supply chain issues following global lockdowns from the Covid-19 pandemic and the Russo-Ukrainian conflict, inflation is making everything from groceries to gasoline more expensive. much more expensive than they were a few months ago. In June, inflation reached 8.1%, the highest year-on-year increase seen since the 1980s.

Even when it’s not at its peak, inflation is an unavoidable reality for all Canadians. Regardless of economic conditions, the price of goods eventually rises over time, and your money will buy less than it used to. The amount that the increase occurs (expressed as a percentage) is the rate of inflation.

Where inflation really starts to hit the average Canadian is when the increase in the price of goods exceeds the increase in wages, compromising their purchasing power. When inflation hit that 8.1% mark in June, hourly wages rose just 5.2%.

How to protect yourself 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, advisers recommend using the same sensible money-saving tactics you share during boom times, like tracking spending, dealing with debt, and avoiding risky investments.

If you’re not already using these tactics, the climate we’re in right now is a reason to build them into your financial life, says Vanessa Bowen, certified professional accountant and founder of holistic money site Mint Worthy.

Forbes Advisor spoke to five money experts to share their best strategies for combating a more expensive world. This is what they shared.

1. Track your spending closely

Budgeting is the top piece of advice from personal finance advisors everywhere, but sticking to a rigid plan is harder than ever. How do you maintain a predetermined limit when the price of everything from milk to Mercedes rises every month? While you may be able to put off buying a Benz, the price of essentials like groceries and gas have also increased.

“Eating is an expensive habit,” says Kerry Taylor, a financial journalist and founder of the finance site Squawkfox. “And it’s not something we can cut from our budget, we have to eat. When we go to the grocery store, inflation hits us back.”

While you can’t just buy less food, going to the grocery store armed with a list and your calculator app can help you save. When considering the unit price, this is the cost per measure, usually per 100 grams in supermarket chains like Food Basics or Metro, you can get more of your favorite foods for less.

RELATED: Does inflation make restaurants cheaper than groceries? This is what the burrito test says

Taylor says 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 reduce the size of a product but keep the price the same, can bite.

“If you can do a little math,” Taylor says, “then you can beat inflation by contraction.”

two. Deal with debt as quickly as possible

Canadians owe a lot of money. In fact, StatsCan estimates that the average consumer owes $1.73 in credit and mortgage obligations for every dollar of their income. This high debt-to-income ratio is not new, but the Bank of Canada’s current interest rate of 2.5% (which is 10 times higher than it was at the end of 2021) is making loan interest rates higher. high, which means those debts are even more expensive to pay.

And, of course, inflation means there’s less extra money to pay off your loans. “If you’re spending more money on food, rent and gas for your car, that leaves less money to pay off your debt,” says Doug Hoyes, co-founder of Hoyes Machalos, a major Canadian personal bankruptcy firm. His first tip for surviving inflation, unsurprisingly, is to tackle consumer debt as quickly as possible to avoid the snowball effect of interest rates overwhelming your finances.

If you have multiple debts, Hoyes suggests addressing the one with the highest interest rate first. This means that a payday loan payment, which could carry the equivalent of an interest rate of 500%, should take precedence over a credit card with a standard rate of 19.99%.

Once you’re free of your largest debt, turn your attention to the one with the next highest interest rate.

But what if you can’t return everything?

If cutting your expenses or getting an extra hustle 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 at 0% interest for six to 12 months. “Taking advantage of something like this during this weather is amazing,” says Bowen. “This is a way to pay off your debts and pay them off faster, without the crazy interest rates.”

3. Use credit cards or bank accounts with cash back

Earning cash for essentials like gas and groceries can be an easy way to put money back in your pocket. Bowen agrees: “It’s a way of making sure that every dollar she spends is paid back to her in some way,” she says.

Typical cash back credit cards will return between 1% and 2%, not much, but certainly better than nothing. However, some cards can give up to 5% back on groceries, for example, and others have welcome offers that offer 10% back in the first few months.

If you choose the credit card route, Bowen says, keep all of your daily spending on it to reap the maximum rewards possible. Bowen and her husband use one for her own expenses. “Every two months or so we have a $100 to $150 cash back that we can redeem,” she says. However, be sure to do your research and avoid overspending. Your cash back won’t really be a profit 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 using a PC Money Account card that works like a debit card. However, it only works where Mastercard is accepted.

Even better, the card awards 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 for our high-interest times, you can’t build up your credit score or rack up expensive debt on the PC Money Account Card. It won’t counteract all of the devastating effects of inflation, but it will soften the blow.

Four. Coupons to learn to love

You probably need all the help you can get with your grocery bill right now. Thankfully, major chains like Metro, Loblaws, and Walmart still offer fliers—maybe you know, the ones your parents or grandparents read religiously for the latest deals—but you don’t have to grab a paper copy every week just to see where you are. . you can save more.

Apps like Flipp help you compare prices at multiple stores at once from a single screen without leaving your home. “It used to be a lot more work to sit down on a Saturday and clip coupons from the local paper,” says Jason Heath, a certified financial planner and managing director of Objective Financial Partners, a paid financial advisory firm.

Today, he said, coupon apps allow anyone to save on food, even food that is close to its expiration date but still edible. Some of these apps work like shopping lists. Checkout 51, in particular, stands out as a cash back coupon app that lets you redeem deals by scanning your receipts after you pay.

Unfortunately, there are downsides to coupon apps, useful as they may seem. Heath says they are, to some extent, marketing tools. “Oftentimes, it encourages you to buy things that you wouldn’t otherwise buy,” Heath said. “Ultimately, I think it’s up to the person to make sure they stick to their shopping list and ideally have some sort of meal plan in place.”

5. Avoid volatile investments

Despite the relatively good performance of 2021, inflation is slowing in global markets. Tech giants like Shopify and cryptocurrencies like Ethereum have lost billions of dollars in valuation over the past year as central banks warn of an impending recession. But that doesn’t mean the stock market is a complete write-off.

John Sacke, investment adviser and portfolio manager at BMO Nesbitt Burns, said investors should look very carefully at companies with a lot 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 choose companies with strong financial performance. “You want to buy stocks in companies that are likely — and I use the word ‘likely’ very carefully — to outperform other companies in a rising rate environment,” Sacke said.

A utility, Sacke said, might be more attractive to an investor right now than a tech company or a bank if the latter has a lot of debt. Investors are not likely to see much in the way of returns if a company’s CEO is forced to spend a large portion of his income just to shore up existing debt.

If you’re looking to build a diverse investment portfolio that preserves capital, GICs are also an option. At EQ Bank, for example, clients can secure a 1-year GIC at 4.35%. Since a GIC guarantees the return of the deposit plus interest, it can be a great way to secure some cash in the future. Also, the current interest rate situation is really a boon for them right now.

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,” she said. “You are going to have a lot of bumps in the road. And this is just another bump.”

Following financial common sense

With a likely recession on the horizon, it’s easy to panic and assume you need to find a brilliant hack to survive these inflationary times with your finances intact. But tried and true financial wisdom will work just fine.

In fact, even if inflation conditions improve by the time you read this article, you should consider adopting the suggestions above to stay on track. Bowen had all of his strategies in place before the inflation started, so she’s not stressed.

“If we implement these things as part of our lifestyle, when we see a change in the economy, when we see a change in inflation, we will already be equipped,” she says. “And we don’t have to try to fight to change things.”

Leave a Comment