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Refining your financial plan for tough times

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In our last column we reminded people about the potential effects that inflation can have on your purchasing power, if it persists for some years. The bottom-line message was to work these facts and realities into your financial plan and make any necessary adjustments.

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In our last column we reminded people about the potential effects that inflation can have on your purchasing power, if it persists for some years. The bottom-line message was to work these facts and realities into your financial plan and make any necessary adjustments.

Great, Dave…thanks a lot. So what are some of these possible adjustments? All I notice is that everything is costing more while my investments have gone down in value. I’m afraid to lock in current savings offerings because rates seem to still be going up. What have you got to suggest, genius?

Okay, a little hostility there, but I can understand that. Before I provide the spoiler alert that there is no one easy answer, let’s agree on some assumptions.

I have cobbled these items together with economic outlooks from BDC, National Bank, other sources and my own intuition, so take with a healthy grain of salt (whose price is not up substantially). After all, these are economics predictions, which are notoriously iffy, and I am not suggesting this is everything we need to consider.

– The Bank of Canada has made it clear that their number one priority is bringing inflation under control, even if it means “inflicting some pain” on the economy. Therefore, expect rates to continue to rise over the next few months.

– Bond and GIC rates are down slightly from early September but have doubled since January 2022. The stock markets have fallen significantly, and valuations are more reasonable than a year ago.

– Inflation is slowing, but a 7% rate is not much better than 8%. If the headline and core rates both fall significantly in the next couple of months, then interest rates may subsequently be held stable for a time.

– House prices have moderated and will continue to decline. Don’t expect a crash.

– We are not in a recession, but with consensus forecasts predicting only 1% growth in the coming 12 months, the risk is high, and vulnerable to the aggressiveness of rate increases. A mild recession is not a disaster.

– Canadians entered 2022 with records amounts of savings in reserve.

– Some core inflation causes have moderated. For example, the rough cost of a shipping container soared from $3,000 in 2019 to $20,000 last year, but is now back down to $6,000. Lumber prices are back down to pre-pandemic levels. On the other hand, extreme weather disasters continue to drive up food prices.

– Labour shortages will continue, as 307,000 Canadians retired in the 12 months ending in August, up almost 50% from the previous year. About 21% of Canadian workers are now 55 or over, while only 13% are ages 15 to 24. It’s going to be a long 10 years for employers, and this is an inflationary pressure as well.

So, here are some suggested steps to take, starting with evaluating how your personal situation fits with some of the stats above, like do you owe money, or do you have excess savings? What is your personal inflation rate?

If you own a home, owe nothing, don’t drive or travel much, have excess income and can otherwise choose how to spend your money, inflation might not be affecting you much. Your concern might be the decline in investment values and whether to lock in savings at today’s rates.

o If that’s your situation, then don’t stress about all this. It will pass, as difficult economic situations also do.

o Remember that low stock prices (and higher savings rates) present an opportunity and take advantage.

On the other hand, if you have a variable rate mortgage and/or line of credit, a family to feed and/or must travel for business, then rising rates and costs will likely be very stressful.

o Can you adjust your grocery purchases? For example, local produce is still available for cooking in bulk and freezing.

o Shop for sales, maximize loyalty programs and coupons. This extra time is a good investment.

o Examine ALL expenses, including subscriptions, phone, internet and streaming services. Negotiate. What can you cut out, at least temporarily?

o Avoid paying interest on credit card balances. Pay off with a line of credit.

o As a worker, take advantage of your bargaining power to ask for a raise or shop for a higher paying job.

o If you are really in dire straits, do you have a second car you can sell? Used car prices are at record highs, while savings in gas and an insurance refund cheque could go a long way.

Again, this too shall pass. The fact is that things look pretty dim right now, but patience and the knowledge that any economic slowdown is likely to be mild with a continuing low unemployment rate should provide some solace. I hope so.

* * *

Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.

Please consult legal, tax, insurance and investment experts for advice on your unique situation.

David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Portfolio Manager and Senior Wealth Advisor with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the 2021 book Managing the Bull, A No-Nonsense Guide to Personal Finance.

David Christianson

David Christianson
Personal finance columnist

David has been a practising financial planner and life advisor since 1982, specializing in helping clients identify and reach their most important goals, and then helping them manage all of their financial affairs, including investments.

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