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 uncertainty by becoming more financially savvy, they say.
“One of the most important things to do is to start by writing down and establishing that budget, looking at your expenses over the last few moments, looking at how much you have and also, how much you owe and how much you own would be helpful,” said Jackie Porter, Certified Financial Planner.
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Porter says this is the year to wonder if past budgets still hold since so much has changed for people in 2022, post-COVID-19 lockdown.
“Maybe people weren’t spending so much in previous years…our finances had basically been frozen for two years (due to COVID-19),” she said.
Now that things are opening up again and people are going out more or traveling abroad, Porter said now is the time to “face reality”.
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We need to “check 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 trying to get people to think about how to spend less money…So maybe instead of splurging for a dinner party, maybe to dine in someone’s garden.”
“So it’s not as if the picking activity has to change. This is how we are going to approach funding,” she said.
Porter says the most important thing to do if you’re getting too anxious is to get out of your head.
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“Budgeting helps you focus,” she said.
While budgeting can be helpful, said Millie Gormely, also a certified financial planner, we need to know what works best for us.
“I like to say that budgets are like diets in the sense that we try to follow them for a certain period of time. And if it’s not the right one for us, it won’t work. And you’re going to end up going back to what you were doing before,” Gormely said.
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’re getting in and what they’re taking out.
“People say if you stop buying avocado toast at Starbucks, you could buy a house. It’s not that simple, but it doesn’t matter where you spend your money. So looking at things like streaming service subscriptions,” Gormley said.
She explains that sometimes people need to be a little “ruthless” with themselves.
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“Not everyone needs cable if you’re really going straight to the point…And hopefully these are temporary things to help you through a tough time,” Gormley said.
After getting a better picture of their spending and income, Gromley and Porter say the next step a person can take is to get professional advice from a financial advisor.
“You can have a conversation to see if there’s anything they can do to help you feel more confident about your financial situation,” Porter said.
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Porter explains that a financial planner can help with budgeting, but also offer advice on how to invest smart and safe and build wealth.
Compared to previous years, Gormley says that these days “more people are looking for financial information,” but not all of that applies to a person’s unique financial situation.
“It’s one thing to read a book or go to a website or read a blog to help you understand the technical aspects of your investment choices. But sometimes it’s very helpful to sit down with someone who does this all day, every day, and see how it affects you,” Gormley said.
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She said sometimes people watch what the markets are doing and get really upset when the market goes down that day.
“I’m having a conversation with a client who’s going through this moment and reminding him that the market did this, but your investment didn’t do that because your portfolio is set up to not automatically do everything that makes the market.” Gormley said.
“Sometimes people have to remember that their portfolio isn’t the market, their financial plan isn’t society. We, as individuals and as families, have our own situations. And that’s what (we) have to watch (without) worrying about what’s going on.
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Porter says rising inflation and higher interest rates have particularly hurt parents who don’t see their income grow at the same rate.
“We’ve seen the cost of everything go up, especially basics like groceries and gas. So all of these things impact my clients’ bottom line and cause them concern. And I think anxiety is probably a big word because it looks like things didn’t fall apart slowly, but quickly under their feet,” she added.
The inflation rate for food, which reached 8.8% in June compared to the same period last year, continues to exceed the general rate of 8.1%.
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“In less than a year…we’ve also seen interest rates rise very rapidly (while we’ve) seen the housing market and home values fall,” Porter said.
The Bank of Canada aggressively raised its benchmark interest rate to 2.5%, from 0.25% over the past six months, in an effort to rein in inflation. But those things are beyond the control of average Canadians, Porter said.
“I think what helps people feel less anxious is to focus on the things they can control. So you can control how much you spend. You can also control how much you don’t spend,” Porter added.
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