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Inflation, high rates putting big purchases on hold? How to budget for must-buys

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Canadians are increasingly shying away from buying big-ticket items amid rampant inflation and rising interest rates, new polling shows, but experts say there are ways to adjust your budget when avoiding major purchases isn’t an option.

Some 75 per cent of Canadians feel it’s a bad time to make big purchases — homes, cars or a major renovation, for example — according to a poll released Thursday from the Angus Reid Institute (ARI). That figure is 20 percentage points higher than similar polling done two years ago.

The polling comes as Canadians are increasingly forced to tighten their belts, with inflation hitting 8.1 per cent in June — levels not seen since 1983. Borrowing is meanwhile becoming more expensive, as the Bank of Canada continues to hike interest rates to dampen spending demand.

Read more: Canada’s inflation rate hit 8.1% in June. Is this the peak?

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Personal finance expert Rubina Ahmed-Haq agrees that it’s “prudent” to put off big ticket purchases right now.

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She tells Global News that it can be fruitful to put off major redecorating or expensive trips for a year or 18 months, as you can use that time to save for the project instead.

Other expenses, such as home appliances or a new vehicle, could see price drops during economic downturns, as was seen in the 2008-09 financial crisis, she says.

“You may actually get a better deal by waiting, if that is possible for you to do,” she says.

Budgeting for the must-buys

But waiting is not always an option for families who rely on a car that recently broke down, for example.

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The first thing to do in a situation like that is manage your expectations, Ahmed-Haq recommends.

Your financial situation might not be right today to get your dream car, but you still need four wheels to get to your job.

“Maybe right now, (go) cheap and cheerful, second-hand. Whatever is in the market is a stopgap to get you through the next a little while,” she says.

Read more: Looking for a used car? What you should know about the booming market

Leasing is also an option for lower upfront costs on transportation. At the end of a lease term, you’ll have the opportunity to buy the car outright for a small premium, she notes.

Instalment-based, or “buy now pay later” plans can also be attractive to buyers who don’t have thousands of dollars lying around for major purchases like a refrigerator. But Ahmed-Haq warns households not to get hooked on attractive deals like this.

“The reason I don’t like them is that it does create bad habits,” she says.

While a single purchase like this might ease the short-term burden, taking the instalment approach on five-to-six smaller items can really start adding to the monthly payments and become “unmanageable,” she argues.

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What about a home?

Despite rising interest rates pushing monthly mortgage payments higher, the resulting cooldown in the housing market might actually make it a good time for some buyers to get into a home, according to Leah Zlatkin, a mortgage broker and expert with LowestRates.ca.

She tells Global News that you could get a “good deal” on a home if you’re shopping now, but that only applies if you check off a few important boxes.

Firstly, she says long-time renters who don’t have an existing home to sell could be in a good position as they don’t have to worry about selling their own home and losing value on the sale.

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The other main factor is your sense of job security as the cooling economy spurs rumblings of a recession and a possible wave of layoffs.

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Zlatkin says that while rising interest can make the mortgage burden harder to carry, losing a job is a much bigger blow to being able to make monthly payments.

“I would be much more concerned about losing a job rather than high rates,” she says.

For those keen on entering the market, or who are finding their existing mortgage becoming too expensive for their comfort, there are a few strategies to stick to your budget.

Zlatkin notes that some government-backed, insured mortgages with five-year, fixed rate-terms are looking like a cheaper option these days.

Read more: Variable mortgages have surged in popularity. Are they still the cheaper choice?

A common solution to mortgage pain, however, is changing your amortization — the amount of time in which you pay back the loan. Adjusting a 20- or 25-year mortgage to a 30-year term results in smaller chunks of monthly payments, Zlatkin says.

“If you’re buying and you need to keep numbers low, I would say, look to put down more and look to take a smaller mortgage,” she says.

Coming up with a plan to stay afloat

While life is tight but manageable for the three-in-four Canadians polled by ARI who are putting off bigger purchases, things are much more dire for a smaller subset of households.

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Some 28 per cent of survey respondents said they are either barely keeping their head above water right now, or worse. That’s up from 18 per cent in July 2020.

Rising costs are affecting people on fixed or lower incomes differently than homeowners and those who were able to save through the pandemic, Ahmed-Haq says.

“For some people, it really is survival.”

Read more: Inflation hits Canadians already struggling with groceries, gas hardest: experts

In those cases, she says what’s most critical is cash flow — making sure the money that’s coming in is enough to cover the bills and debt obligations.

She recommends taking a look at monthly expenses and trimming subscription services that aren’t necessary, going to the most affordable grocery store with a list in hand and avoiding taking on new debt whenever possible.

Sometimes you might have to adjust your savings plan as well with less money to put away every month, but Ahmed-Haq says not to forget about retirement or rainy day funds in the long-term.

Cutting back on savings contributions can have lasting impacts down the line, as a critical aspect of investments is their ability to compound over time.

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“Maybe scale back, but also understand what that scaling back means. That means that maybe down the road you might have to scale up again, maybe even beyond what you are doing right now,” she says.

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If you’re in danger of missing a mortgage payment, Zlatkin recommends being proactive and reaching out to your lender or broker as soon as you see trouble on the horizon. Waiting to talk about financial tightness could mean missing payments, facing delinquency and triggering a number of penalties.

Speaking to a lender about a plan to change your terms or organize a deferral schedule could help avoid a bad situation before it comes to pass, she says.

“Tell them what the situation is. People are understanding. And if it’s a job-loss situation or a health issue – somebody is in the hospital or whatever it is – lenders are usually accommodating,” Zlatkin says.

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“They want to work with you because they want to get you back on track.”

The Angus Reid Institute polled 1,606 Canadians who are members of the institute’s forum from July 18-20, 2022. The survey carries a margin of error of +/- two percentage points, 19 times out of 20. The survey was commissioned and paid for by the Angus Reid Institute.

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