As rates start to climb you may be wondering how to cope? You’re not alone!
According to Statistics Canada, the Consumer Price Index rose at an annual rate of 5.1% in January. A record-breaking peak in the cost of food contributed to the cost of living going up at its fastest rate in three decades! Record-breaking house prices aren’t the only substantial increase we’ve seen; groceries, clothing, cars…even appliances have seen large increases in price.
So how do we cope with such drastic change? Here are some strategies to help!
- Re-evaluate (Or start) your budget – Calculate your income (from all sources) to have a clear picture of how much money you have a month.
- List expenses – List mandatory costs like gas, groceries, rent/mortgage and utilities, these come first. Then move on to regular non-essential expenses, like your car wash membership, daily coffee runs, and take-out… These costs don’t need to be prioritized. That way if income is short and something needs to end up on the cutting room floor you know where to start.
A budget doesn’t need to be complicated, it’s simply a plan for your money. What’s coming in vs. what’s going out. Is there enough? No? Then where can changes be made?
It’s been an unprecedented few years with many unexpected hurdles, like being unable to work for months. For many of us that may have meant diving into our savings more than we’d hoped, or using credit to stay afloat. So what can we do to lessen the load our debt carries?
- Explore credit options – What interest rate are you paying on your credit card? Maybe it’s time to look at lower rate options and make the switch.
- Consolidating debt – If you have multiple lines of credit or credit cards it may be a good idea to consolidate your debt under one new loan. This might be possible through a new secured or unsecured line of credit or loan.
Periods of inflation are usually followed by rising interest rates and that often impacts cash flow, especially if you have a mortgage. How could this impact your mortgage payments? Well, in a couple of ways.
Fixed-rate mortgages are unaffected until renewal time.
Variable-rate mortgages will likely see a rate increase. It could be time to consider a switch to a fixed-rate mortgage, to lock in a rate before rates continue to increase.
Now is not the time to panic. A diverse portfolio of stocks and bonds can generally stay the course and outpace inflation over time. Stocks have historically beaten inflation by a large margin. Bonds should be used as a shock absorber for your portfolio during market downturns. Contrastingly, stocks are growth engines for your portfolio, with good long-term return potential. However, with that comes the risk, so balance is key!
If you’ve been considering making a large purchase like new appliances or a new car, it may be wise to wait it out a bit. Supply chain disruptions caused by the pandemic have been the root cause of pricing increases, and it’s expected to ease over the next year. Prices should start to come down, making those larger investments more manageable.
The times we are in have been uncertain and certainly unprecedented, but all this means is that we have to be ready and willing to be flexible as these situations pan out. You’ve got this!