Budgeting While Grappling with Inflation

With so many Canadians grappling with inflation, I spoke with Global News recently with advice on how to find some extra money in your budget.  You can watch the segment here.

What we should be doing right now and perhaps what we shouldn’t be doing?

  • Definitely bulking up your emergency savings
  • Looking at your mortgage – are you variable or fixed?  Should you make changes with interest rates rising?
  • The numbers aren’t pretty:
  • According to the MNP Consumer Debt Index created by Ipsos, of those planning to renew a mortgage in the next 12 months: Five moves for mortgage holders living too close to their financial edge - The Globe and Mail
  • · 15 per cent say they are not financially prepared to deal with a rate increase of one percentage point;
  • · 34 per cent say they already don’t make enough to cover their bills and debt payments;
  • · 46 per cent say they’re $200 away or less from not being able to meet all of their financial obligations (versus 49 per cent of the general population);
  • · 42 per cent say that rising rates could drive them closer to bankruptcy;
  • · 50 per cent say they regret the amount of debt they’ve accumulated.

Is it the right time to be buying a house? (from the financial post)

  • Ottawa announced a new tax-free First Home Savings Account (FHSA) in its 2022 federal budget earlier this month. But while the account aims to help more Canadians enter the housing market, most believe it will do little to help them purchase a home, a recent Hardbacon survey found.
  • The FHSA – expected to be introduced in 2023 – will assist home buyers with saving for a down payment on their first home. Younger Canadians between the ages of 18 and 40 can save up to $8,000 a year over five years for a total of $40,000.
  • The account will offer a tax deduction and tax-free withdrawals, combining the benefits of both retired registered savings plans (RRSPs) and tax-free savings accounts (TSFAs).
  • Yet, while a majority (70 per cent) of Canadians want to use the FHSA, most (72 per cent) think it won’t help them buy a home.
  • Skyrocketing home prices is one reason. Some (39 per cent) think the FHSA is unfair because it leaves out people who want to buy in more expensive markets.
  • The Canada Mortgage and Housing Corp. only allows a minimum down payment of $40,000 for a maximum purchase price of $650,000. In comparison, the average price of a home in Canada reached a record $816,720 in February.
  • Those who do plan to put money into the account next year are hoping to cut spending (32 per cent), decrease RRSP contributions (16 per cent), and reduce (12 per cent) or take money out (nine per cent) of their TFSA. Some (three per cent) also intend to take money out of their RRSP or reduce contributions to a Registered Education Savings Plan (two per cent).
  • Of the 30 per cent who don’t plan to use the savings tool, over half (54 per cent) don’t understand its advantages and the others (46 per cent) believe they won’t have enough money to.
  • Still, the bulk of Canadians (88 per cent) want to become homeowners one day.
  • The amount of time they think it will take them to save for a down payment varies. Twenty-two per cent think it will take five years, five per cent think it will take 10 years, and six per cent think it will take 15 years or more.
  • Most (82 per cent) do not expect to receive financial support from their parents. Of the fortunate 17 per cent who do, nearly half said they (47 per cent) won’t have to pay them back.
  • Among them, 20 per cent expect between $5,000 and $10,000 from their parents, 30 per cent anticipate between $15,000 and $30,000, and 15 per cent think they will get between $50,000 and $100,000. The luckiest 10 per cent expect to receive over $100,000.
  • “What the survey found is that the most effective source of a down payment is the Bank of Mom and Dad. Still, not everyone is that fortunate,” said Balinsky.

How should we be planning for summer vacation without spending too much?

  • Lead with the flight – what’s the least expensive and plan from there
  • Or ditch the flight entirely and drive (Banff, Jasper)
  • Look to last minute deals like Travelzoo
  • Use your rewards points – from credit cards, Airmiles, Areoplan
  • Consider a staycation
  • Ontario is offering tax credits for vacationing in their province – can we push for Alberta to do the same?