Fine-tuning your financial plan for tough times – Winnipeg Free Press

In our last column, we reminded people of the potential effects inflation can have on your purchasing power, if it persists for a few years. The basic message was to work these facts and realities into your financial plan and make the necessary adjustments.

Great, Dave… thank you very much. So what are some of these possible adjustments? All I notice is that everything costs more while my investments have lost value. I’m afraid to lock in current savings offers as rates seem to be rising again. What do you have to suggest, genius?

Okay, a bit of hostility, but I can understand that. Before we deliver the spoiler alert that there’s no easy answer, let’s agree on some assumptions.

I’ve cobbled together these with the economic outlook from BDC, National Bank, other sources, and my own intuition, so take it with a healthy grain of salt (which hasn’t risen in price much). After all, these are economic predictions, which are notoriously uncertain, and I’m not saying that’s all we need to consider.

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

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

– Inflation is slowing, but a rate of 7% is hardly better than 8%. If interest rates and base rates both drop significantly over the next two months, interest rates could then remain stable for some 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 calling for only 1% growth over the next 12 months, the risk is high and vulnerable to aggressive rate hikes. A mild recession is not a disaster.

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

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

– Labor shortages will continue, as 307,000 Canadians retired in the 12 months to August, up nearly 50% from the previous year. About 21% of working Canadians are now 55 or older, while only 13% are between the ages of 15 and 24. Employers will have to wait 10 long years, and this is also inflationary pressure.

So here are some suggested actions to take, starting with assessing how your personal situation matches up with some of the statistics 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 affect you much. Your concern might be the decline in the value of investments and whether to lock in savings at today’s rates.

o If this is your situation, don’t worry about any of this. It will pass, as do difficult economic situations.

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

On the other hand, if you have an adjustable rate mortgage and/or line of credit, a family to support and/or need to travel for business, rising rates and costs are likely to be very stressful.

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

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

o Review ALL expenses including subscriptions, phone, internet and streaming services. To negotiate. What can you remove, at least temporarily?

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

o As a worker, use your bargaining power to ask for a raise or shop around for a better 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 gas savings and an insurance reimbursement check could go a long way.

Again, this too shall pass. The thing is, things are looking pretty bleak right now, but patience and knowing that any economic downturn is likely to be moderate with still-low unemployment should provide some comfort. I hope.

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Dollars and Sense is intended as an introduction to this subject and should in no way be construed as a substitute for personalized professional advice.

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

David Christianson, BA, CFP, RFP, TEP, CIM is a Fellow FP Canada™ (FCFP) recipient and has been repeatedly named one of Canada’s Top 50 Financial Advisors. 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
personal finance columnist

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