Managing your money in times of inflation

The price of everything is going up but your monthly paycheque isn’t. Does this sound familiar? You’re not alone. Most people are being forced to stretch their money a lot further with no additional cash coming in. 

According to the latest consumer price index, food prices at Canadian grocery stores rose at the fastest pace since August 1981, with prices up year-over-year by 9.9%. 

The rising cost of everyday necessities can lead to money stress if you don’t have a plan for managing and prioritizing your spending. You can navigate through these difficult times and avoid financial anxiety by spending smarter.  

Here’s what you need to know about inflation and how you can ride out the economic storm on your current income. 

Inflation 101: How inflation affects the cost of stuff

What does it mean when the news reports that “inflation is higher than normal”

Inflation is something the Bank of Canada measures by adding up the cost of a “basket of goods”. The basket comprises about 300 daily items that most people are likely to buy. Think of it like a shopping cart full of everyday items such as milk, bread, t-shirts, laundry detergent, and so on. If the cost of the basket is five per cent higher than it was last month or last year, we can say the inflation rate is five per cent, even if the cost of some items went up more than others or if some went down. 

However, the Bank of Canada doesn’t know what you put in your shopping cart. It only uses averages. You may be a really good shopper, know how to score a great deal, and do things to save money, like taking your lunch to work and riding a bike instead of driving a car. If that’s the case, inflation isn’t hitting you as hard as someone who spends most of their money on convenience items. 

It's also good to know that inflation goes up and down for all kinds of reasons. Governments try to keep inflation in the one, to two per cent range. However, when it spikes, those increases are painful for everyday Canadians having to buy food, gas and other necessities.

No one knows precisely when inflation will return to normal, affordable levels, but it’s helpful to think of this as a cycle and not the “new normal”. That will help you accept that the financial measures you take to ease the pain are temporary.  

Things you can do to lower costs in times of high inflation

There are steps you can take to bring down the cost of your monthly “basket of items” so that your inflation rate is not as high as everyone else's. Here are three things you can do on your own, or with the help of family members, to lower your expenses while you wait for inflation to cool off. 

Track your spending

A simple budget is the best way to know where your money goes .Make a list and use bank records and credit card statements to remind yourself of the places where you spend. Then, ask yourself three questions: 

  • What can I eliminate? 
  • What can I reduce? 
  • What can’t I change? 

Once you know where your money goes, make a plan to stop or reduce expenses on those things you don’t need. These smart spending tips can help:   

Put some subscriptions on pause

Review all of your monthly costs for magazine, newspaper, or app subscriptions. Do you still use them? Are there some you can live without temporarily? Consider cancelling them or putting them on hold. 

Renegotiate your digital bundle/package 

If you have a phone, Internet and TV from one provider, give them a call and see what deals they have running that can reduce your bill. Review your services and make sure you are using all of them. For example, if you’re paying for TV stations and streaming services you don’t need, there could be cheaper packages or other service options. 

Manage home expenses

Simple steps like sealing your windows, tuning up the furnace, replacing your lights with LED bulbs, and running appliances in off-peak hours could pay off in big energy savings. 

Price-shop on insurance

If you have home, renters, auto, motorbike, life, pet, or any other form of insurance, shop around. You may be able to bundle everything together and cut your costs.

Target zero food waste

Astonishingly, 40 per cent of food gets wasted. If this is true, it means Canadians are buying 40 per cent more food than we eat. Planning meals, minimizing waste, and eating leftovers may be the most delicious way to combat rising food prices. 

In addition to all the things you can do to stretch your dollars, there are also ways to help you manage any debt you are carrying. 

Managing debt in times of inflation 

If you have a loan or one or more credit cards, you may think of your monthly payments as something that’s out of your control and impossible to change. That’s not the case.

If you’re not in a position to pay down a portion of the loan, you still have two options for decreasing the amount of your monthly payment. 

Option 1. Extend the term of your current loan

Most lenders will work with you to renegotiate your loan. For example, if you increase the length of your loan it will reduce the amount of your monthly payment. It’s important to work with a loan expert and discuss the short-term advantages of lower payments against the added interest you’ll pay over time by extending your loan. They can help you run the numbers and determine if this is the right strategy for you. 

Option 2. Consolidate your debt with a new loan

Using one loan to pay off several other loans, or credit card balances, can result in one monthly payment that is lower than all of your current debts combined. And because you can choose the length of your new loan, you’ll be able to lower your payment by choosing a longer term. To find out if this option is right for you, see: When is the right time to consolidate debt? 

At easyfinancial we are here to help. Talk to us if you are looking for some financial relief, have questions about managing debt in the face of inflation, or would like to adjust your current loan. Visit one of our 400 branches, call us at 1-888-502-3279, or apply online for loans up to $75,000.  


Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.

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