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Managing sticker shock

Keeping finances on track as inflation and interest rates tick up.

We’ve probably all had a moment of sticker shock recently, looking at suddenly higher prices for groceries, clothes, gas and more. At the same time, mortgages and loans are also getting more expensive as interest rates rise. 

With inflation and interest rates putting the squeeze on household finances across the country, it’s no surprise that among those who responded to a recent Manulife Bank Debt Survey:[1]

  • 89 per cent are worried about inflation 
  • 80 per cent are worried about interest rates
  • 80 per cent think there is an affordability crisis in Canada

The good news is that spending and borrowing can often be adjusted to avoid derailing long-term financial plans. Here are some strategies to consider as we ride out this challenging period. 

How to better manage spending

Although a household budget can be a very effective way to manage where your money goes, only about half of Canadians have one.[2] If you don’t have a budget yet, creating one is simply a matter of listing all your monthly income and expenses. This budget worksheet can help you get started. If you already have a budget, update it to reflect your current expenses or income.

People who make more than they spend are in a good position to build wealth by redirecting the surplus towards their savings. People who spend more than they make can either increase income or reduce spending to bring their budget back into balance.

Increasing income tends to be harder, but maybe you can ask for a raise, look for a higher-paying job, increase the number of paid hours you work or start a money-making venture on the side. Perhaps you might consider taking in a lodger or renting out your cottage, if you have one. Maybe there are some assets you can sell to make more money flow into your budget.

To reduce spending, look at your budget and identify “needs” (the things you can’t do without, like food and shelter) versus “wants” (the extras that make life more fun). Can you cut costs for the “needs” by comparison shopping, choosing no-name brands, buying in bulk or negotiating discounts for bundling services with one provider? Can you skip (or delay) buying some of the “wants” by repairing instead of replacing items, borrowing tools you won’t need regularly or postponing a costly project such as a renovation? 

Every dollar you don’t spend adds breathing room to your budget and puts you in a better position in case prices and interest rates keep rising. What’s more, putting this unspent money into an emergency fund can help you be even better prepared.

How to better manage borrowing

About one in five respondents to the Manulife Bank Debt Survey expect rising interest rates to have a significant impact on their mortgage situation, overall debt situation and overall financial situation. A similar number (23 per cent) think they would be forced to sell their home if interest rates rise further, while 18 per cent believe they already can’t afford their current home.

There is, however, a straightforward way to reduce interest payments, and this strategy is more important than ever as prices and interest rates go up. 

First, list each debt, including the outstanding balance and interest rate. You may see a wide range of interest rates. The lowest rates are often for a mortgage or line of credit, and the highest rates are often for credit cards. 

Next, consider consolidating higher-interest debt into a line of credit. This simplifies debt management and can save a significant amount in monthly interest charges.

If you have a mortgage, consider an all-in-one account that bundles together the mortgage, a flexible line of credit and a savings account. An account like this could reduce the amount of interest you pay, help you pay off your mortgage years earlier and make it much easier to manage the money flowing into and out of your household. 

Keep saving if you can

If you’ve found ways to reduce your spending and borrowing costs, it’s possible you’ll be able to do more than just manage inflation and rising rates. You may be able to keep saving, which will benefit you in the long term. 

Speak with your advisor about the best ways to grow your money – whether that means an accessible high interest savings account, a locked-in guaranteed investment certificate or a portfolio of investments selected to grow over a long period of time. Also consider the pros and cons of various tax-efficient accounts such as Tax-Free Savings Accounts, Registered Retirement Savings Plans and Registered Education Savings Plans, as well as non-registered accounts.

By continuing to save what you can, even in a challenging environment, you’re putting yourself on a path towards greater financial flexibility – and fewer worries the next time inflation and interest rates rise.

How are inflation and rising interest rates affecting Canadians?  According to the Manulife Bank Debt Survey:  77 per cent have felt the impact of higher prices. 68 per cent don’t think wages are keeping up with inflation. 50 per cent say their spending is outpacing their income. 47 per cent would struggle to handle unexpected expenses. 41 per cent often feel overwhelmed by their financial situation.

Source: www.manulifebank.ca/personal-banking/plan-and-learn/personal-finance/spring-debt-survey.html

Lifestyle audit

It’s easier to control your spending than to increase your income. Although you may need to alter your lifestyle to suit the economic times, using creativity to spend less may be preferable to working a second job to finance the same lifestyle you’re used to. 

To get started, audit your lifestyle. Include all the things you spend money on that aren’t essential, such as: 

  • Subscriptions 
  • Streaming services for movies and/or music
  • Ride-sharing services
  • Mobile data plans
  • Gaming services
  • Restaurants, takeout, food delivery
  • Movies, theatre, concerts, concession stand snacks
  • Cleaning services, lawn and garden care

Figure out what you can do without, what can be put on hold temporarily and what alternatives exist. For example, do you really need to buy that latte every day? Perhaps you can invest in a coffee machine at home and a good-quality travel mug instead. Maybe you could eat out once every two months instead of every two weeks. Whatever you decide, remember that while it might initially seem hard to change habits, the savings will be well worth it.


[1] www.manulifebank.ca/personal-banking/plan-and-learn/personal-finance/spring-debt-survey.html

[2] www.canada.ca/en/financial-consumer-agency/programs/research/canadian-financial-capability-survey-2019.html; www.manulifebank.ca/personal-banking/plan-and-learn/personal-finance/spring-debt-survey.html

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