As Canadians make their way through higher interest rates and up inflationmany feel more anxious and fearful about 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 writing and doing that budget, review your spending over the past few years, see how much you have and also how much you owe and how much would be yours. helpful,” said Jackie Porter, a certified financial planner.
Porter says this is the year to reflect on whether previous budgets still hold, as a lot has changed for people in 2022, after the COVID-19 lockdown.
“Maybe people weren’t spending as much in previous years… our finances were pretty much on lockdown for two years (due to COVID-19),” he said.
Now that 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 value,” he said.
“I don’t want to be the financial Grinch… I’m really trying to encourage people to think about how to spend less money… So maybe instead of splurging on dinner out, maybe have dinner in someone’s backyard.” “.
“So, it is not that the collection activity has to change. This is how we are going to approach payment,” she said.
Porter says that the most important thing to do if you’re getting too anxious is to get out of your head.
“Budgeting helps you focus,” he 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 that we try to stick to them for a while. And if it’s not the right one for us, it’s not going to work. And you’re going to end up going back to whatever you were doing before,” Gormely said.
Gormley believes in what she calls “cash flow planning,” in which clients must review all their sources of income and expenses and see what comes in and what goes out.
“People say that if you stop buying avocado toast at Starbucks, you could buy a house. It’s not that simple, but it does matter where you spend your money. So looking at things like subscriptions to streaming services,” Gormley said.
She explains that sometimes people need to be a little “merciless” with themselves.
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“Not everyone needs cable if you really get down to the nitty-gritty… And you would hope these are temporary things to get you through a tough time,” Gormley said.
After getting a better idea 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 advisor.
“You can have a conversation to see if there’s anything they can do to help you feel more secure about your financial circumstances,” Porter said.
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Porter explains that a financial planner can help with budgeting, but also offer advice on how to invest wisely and safely and build wealth.
Compared to years past, Gormley says “more people are looking for financial information” today, but not everything 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 get a sense of the technicalities of your investment options. But sometimes it’s so valuable to sit down with someone who does this all day, every day, and see how it affects you,” Gormley said.
She said that sometimes people look at what the markets are doing and get very upset when the market drops that day.
“I have a conversation with a client who is going through that and I remind him that the market did this, but his investment didn’t do that because his portfolio is set up so that it’s not going to 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 situations. And that’s what we (should) look at (without) worrying about what’s going on.”
Porter says rising inflation and higher interest rates have hit parents especially hard who don’t see their incomes rising at the same rate.
“We have seen the cost of everything go up, especially staples like groceries and gasoline. So all of those things impact my clients’ bottom line and give them cause for concern. And I think probably anxiety is a great word because it seems like things have not slowly but rapidly crumbled under their feet,” she added.
The food inflation rate, 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 go up very quickly, (while) we’ve seen the housing market and home values fall,” Porter said.
The Bank of Canada has aggressively raised its benchmark interest rate to 2.5 percent from 0.25 percent over the past six months in a bid to curb inflation. But those things are beyond the control of average Canadians, Porter said.
“I think what helps people feel less anxious is focusing on 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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