As Canadians navigate their way through higher interest rates and rising inflation, many are feeling more anxious and fearful when it comes to planning their finances, according to some financial planning experts. But, there are ways to deal with the uncertainty by becoming more financially literate, they say.
“One of the most important things to do is to start with writing down and making that budget, looking through your expenses over the last little while, looking at how much you have and also, how much you owe and how much you own would be helpful,” said Jackie Porter, a certified financial planner.
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Porter says this is the year to reflect on whether past budgets still hold up since so much has changed for people in 2022, post COVID-19 lockdown.
“Maybe people weren’t spending as much in previous years…our finances were pretty much in lockdown for two years (because of COVID-19),” she said.
Reality check
Now that things are opening up again and people are going out more or travelling abroad, Porter said now is the time for a “reality check.”
We need to “check on our finances to see what we can afford and what we value,” she said.
“I don’t want to be the financial Grinch…I’m just really trying to encourage people to think about how to spend less money…So, maybe instead of splurging on a dinner out, maybe have dinner in someone’s backyard.”
“So, it’s not like the activity of gathering has to change. It’s how we’re going to approach paying for it,” she said.
Porter says the key thing to do if you’re getting too anxious is get out of your head.
“Budgeting helps you focus,” she said.
While budgeting can be helpful, said Millie Gormely, also a certified financial planner, we need to know what fits us best.
“I like to say that budgets are like diets in the sense that we try to follow them for a while. And if it’s not the right one for us, it’s not going to work. And you’re just going to end up going back to whatever it was you were doing before,” Gormely said.
Cash-flow planning
Gormley believes in what she calls “cash-flow planning” where clients need to look through all of their income sources and expenses and see what they have coming in and what they have going out.
“People say if you just stop buying avocado toast in Starbucks, you could buy a house. It’s not that simple, but it does matter where you’re spending your money. So, looking at the things like subscriptions to streaming services,” said Gormley.
She explains that sometimes people need to be a little “ruthless” with themselves.
“Not everybody needs cable if you’re getting really right down to the nitty-gritty…And one would hope that these are kind of temporary things to get you through a rough spot,” Gormley said.
Take expert advice
After getting a better picture of one’s expenses and income, Gromley and Porter say the next step a person can take is to get professional advice from a financial adviser.
“You can have a conversation to see if there is anything that they can do to help you feel more confident around your financial circumstances,” said Porter.
Porter explains that a financial planner can help with budgeting, but also offer advice about how to invest in a smart and safe way, and build wealth.
Compared to previous years, Gormley says nowadays “more people are seeking financial information,” but not all of it applies to a person’s unique financial situation.
“It’s one thing to read a book or go on a website or read a blog to help you get a sense of the technicalities of your investment choices. But sometimes it is very valuable to sit down with someone who does this all day, every day, and look at how it affects you,” said Gormley.
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She said sometimes people look at what the markets are doing and get really upset when the market goes drops that day.
“I have a conversation with a client who’s having that moment and I remind them that the market did this, but your investment didn’t do that because your portfolio is set up in a way that it’s not going to automatically do everything the market does,” said Gormley.
“Sometimes people have to remind themselves that their portfolio is not the market, their financial plan is not society. We as individuals, and as families have our own situations. And those are what (we) need to look at (without) worrying about what’s going on.”
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Porter says rising inflation and higher interest rates have especially affected parents who aren’t seeing their income go up at the same rate.
“We’ve seen the cost of everything go up, especially the staples like groceries and gas. So all of those things impact my clients’ bottom line and give them cause for worry. And I think probably anxiety is a great word because it just seems like things have not slowly, but quickly crumbled under their feet,” she added.
The inflation rate for food, which reached 8.8 per cent in June compared to the same time last year, continues to outpace the broader rate of 8.1 per cent.
“In less than a year…we’ve seen interest rates go up really quickly as well, (while we’ve) seen the housing market and the value of homes dropping,” said Porter.
The Bank of Canada has aggressively increased its benchmark interest rate to 2.5 per cent from 0.25 per cent over the past six months in an attempt to curb inflation. But those things are beyond the control of average Canadians, said Porter.
“I think what helps people feel less anxious is focusing on the things that they can control. So you can control how much you spend. You can control how much you don’t spend as well,” Porter added.