Refining your financial plan for tough times – Winnipeg Free Press

In our last column, we reminded people of the potential impact inflation can have on your purchasing power if it persists for a few years. The bottom line was: incorporate these facts and realities into your financial plan and make any necessary adjustments.

Great Dave…thank you very much. So what are some of these possible customizations? I just notice that everything costs more while my investments have lost value. I’m afraid to take out current savings deals because interest rates still seem to be rising. What do you suggest, genius?

Okay, a little hostility, but I can understand that. Before I give the spoiler alert that there is no easy answer, let’s settle on a few assumptions.

I cobbled together these points with economic prospects from BDC, the National Bank, other sources, and my own intuition, so with a healthy grain of salt (the price of which hasn’t increased significantly). After all, these are economic forecasts that are notoriously dubious, and I’m not suggesting that’s all we need to consider.

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

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

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– Inflation is slowing down, but a 7% rate isn’t much better than 8%. If both the key interest rate and the core interest rate fall significantly in the next few months, interest rates can then be kept stable for a while.

– Real estate prices have weakened and will continue to fall. Don’t expect a crash.

– We are not in a recession, but with consensus forecasts predicting 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 in reserves.

– Some drivers of core inflation have weakened. For example, the approximate cost of a shipping container went from $3,000 in 2019 to $20,000 last year, but has now fallen back to $6,000. Timber prices have fallen back 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% year-on-year. About 21% of Canadian workers are now aged 55 or older, while only 13% are between the ages of 15 and 24. It’s going to be a long 10 years for employers and this is also inflationary pressures.

Here are some recommended steps you should take, starting with assessing how your personal situation fits into some of the stats above, e.g. B. Do you owe money or have excess savings? What is your personal inflation rate?

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If you own a home, don’t owe anything, don’t drive or travel much, have excess income, and otherwise have choices about how to spend your money, inflation might not affect you much. Your concern may be the fall in asset values ​​and whether you should save at today’s interest rates.

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

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

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

o Can you customize your grocery shopping? For example, local products continue to be available for bulk cooking and freezing.

o Shop offers, maximize loyalty programs and coupons. This extra time is well invested.

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

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

o As an employee, use your bargaining power to ask for a raise or seek a higher-paying job.

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o If you are really in need, do you have a second car to sell? Used car prices are at record highs, while savings on gas and insurance reimbursement testing could go a long way.

This too shall pass. The fact is, things are looking pretty grim at the moment, but patience and the knowledge that an economic slowdown is likely to be mild with the unemployment rate remaining low should offer some comfort. Hopefully.

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

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

David Christianson, BA, CFP, RFP, TEP, CIM is an FP Canada™ Fellow (FCFP) recipient and has been repeatedly recognized as a Top 50 Financial Advisor in Canada. He is a portfolio manager and senior wealth advisor at 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 practicing financial planner and life coach since 1982, specializing in helping clients identify and achieve their most important goals, and then helping them manage all of their financial affairs, including investments.