As Canadians navigate their way higher interest rates and increase inflationaryMany people are feeling more anxious and scared when it comes to planning their finances, according to some financial plan Experts. However, there are ways to deal with uncertainty by becoming more financially savvy, they say.
“One of the most important things to do is to start by writing it down and budgeting it, looking at your past expenses, seeing how much you have and owe, how much you owe and how much you owe. How much do you own? Jackie Porter, a certified financial planner.
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Porter says that this is the year to think about whether the previous budget will hold up because so much has changed for everyone in 2022, following the COVID-19 lockdown.
“Maybe people didn’t spend as much as in previous years… our finances were pretty constrained for two years (because of COVID-19), she said.
Now things are opening up again and people are going out more or traveling abroad, Porter said now is the time for a “reality check.”
We need to “check our finances to see what we can afford and what we appreciate,” she said.
“I don’t want to be a Grinch financier… 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 going out to dinner. in someone’s backyard.”
“So it’s not the gathering activity that has to change. That’s how we approach paying for it,” she said.
Porter says the important thing to do if you’re too nervous is to get out of your head.
“Budget helps you stay focused,” she says.
While budgeting can be helpful, we need to know what works best for us, says Millie Gormely, a certified financial planner.
“I would say that budgets are like diets in the sense that we try to stick to them for a while. And if it doesn’t work for us, it won’t work. And you end up going back to whatever you did before,” says Gormely.
Gormley believes in what she calls “cash flow planning,” where clients need to look at all their sources of income and expenses and see what they go in and what they go out.
“People say if you just stop buying avocado toast at Starbucks, you can buy a house. It’s not that simple, but it matters how important you spend your money. So consider things like subscribing to streaming services,” says Gormley.
She explains that sometimes people need to be a little “cruel” to themselves.
“Not everyone needs cable if you’re really getting on with it… And one would hope that these are temporary things to get you through a rough time,” says Gormley.
After better understanding one’s expenses and income, Gromley and Porter say the next step a person can take is to seek professional advice from a financial advisor.
“You can chat to see what they can do to help you feel more confident about your financial situation,” says Porter.
Porter explains that a financial planner can help with budgeting, but also offers advice on how to invest smartly and safely, and build wealth.
Compared to previous years, Gormley said, “more people are looking for financial information today,” but not all of that information applies to a person’s own financial situation.
“Read a book, go to a website or read a blog to help you understand the technicalities of your investment options. But sometimes it’s very valuable to sit down with someone who does this all day, every day and see how it affects you,” says Gormley.
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She said that sometimes people look at what the market is doing and get really upset when the market drops that day.
“I had a conversation with a client who was having that moment and I reminded them that the market did this, but your investment didn’t do it because your portfolio is set up. in a way that it won’t automatically do everything the market does,” Gormley said.
“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 unique circumstances. And that’s what (we) need to look at (without) worrying about what’s going on.”
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Porter said that rising inflation and higher interest rates have particularly affected parents, who have not seen their incomes grow at the same rate.
“We’ve seen the cost of everything go up, especially staples like groceries and gas. So all of that hits my client’s bottom line and worries them. And I think maybe anxiety is a great word because it’s like things don’t slowly but quickly crumble at their feet,” she added.
The inflation rate for food, which hit 8.8% in June compared with the same time last year, continues to outpace the broader rate of 8.1%.
“In less than a year… we’ve seen interest rates go up very quickly, (while we) have seen the housing market and home values fall,” says Porter.
The Bank of Canada has aggressively raised its benchmark interest rate to 2.5% from 0.25% in the past six months in an effort to contain inflation. But those things are beyond the control of ordinary Canadians, Porter said.
“I think what helps people feel less anxious is focusing on the things they can control. So you can control how much you spend. You can also control how much you don’t spend,” adds Porter.
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