Dec. 20, 2022 "A new year won't solve all of your financial problems: Tips for a better 2023": Today I found this article by Barry Choi on the Financial Post and National Post:
After the onset of COVID-19, Canadians might have thought they were ready for any curveballs coming their way. However, there’s always something that can take your wallet off guard.
I bet most people didn’t anticipate rising interest rates, falling home prices, and record inflation all in the same year. Canadian debt levels are near record highs, and these financial landmines haven’t exactly helped.
According to Statistics Canada, Canadians now owe $1.83 for every dollar of disposable income they bring in. That’s up from $1.77 last year.
While no one can accurately predict what will happen in the future, let’s look back at the lessons we’ve learned in 2022 and see how we can apply them in 2023.
Interest rates are approaching their peak
Since March, the Bank of Canada has raised interest rates seven times. The overnight rate now sits at 4.25 per cent, which is four per cent higher than where things were when the year started. To give some context, every .50 per cent increase would cost you another $100 each month for every $300,000 borrowed. Those on variable-rate mortgages have already felt the pain, but homeowners that are set to renew soon need to start thinking about their plans now.
During the last policy announcement, the Bank of Canada signalled that it’s near the end of its hiking cycle. That said, additional increases are always possible.
For those in a good financial position, it might be worth considering a shorter term mortgage for now (such as three years) to see how things play out. Now, if you’ve been caught in this rising interest rate environment and it’s given you anxiety, switching to a fixed-rate mortgage might allow you to sleep better.
The rise and fall of home prices
The rise in interest rates has had a direct impact on housing prices. Once rates started to rise, home prices started to fall. While this may have sounded good for potential homebuyers, affordability didn’t get any better. That’s because the cost of borrowing has outpaced the price declines in many markets throughout Canada.
If you’re in the market for a home, don’t try to time things. Sure, a housing crash is possible, but there’s also a possibility that prices increase again.
If you purchase a home that fits your budget and plan on staying in it for five or more years, then don’t worry too much about the price.
Think of your home as a place to live and not an investment.
Gas prices have become more manageable
The constant swings in gas prices have left many drivers with road rage. Fortunately, the price of fuel has dropped significantly compared to what we’ve seen over the last two years. While it is possible to save money on gas prices by avoiding high speeds or using price comparison apps (like Gasbuddy), those tips can only get you so far.
Anyone looking to greatly reduce their commuting costs will need to
drive less,
take public transportation more,
carpool,
or get a job closer to home.
However, all of those solutions may not be realistic depending on your situation. A better idea might be to think about the future.
When you eventually need to purchase a new vehicle, consider going electric or getting something with a lower price tag to help you keep your monthly expenses down.
Rethink your cryptocurrency strategy
Undoubtedly, cryptocurrency has been all the rage in the last few years. However, some recent events may have shaken investor confidence. With the collapse of cryptocurrency exchange FTX, it’s estimated that around $1 billion in customer deposits is missing and that FTX owes over $10 billion to creditors. Suddenly, many people who thought they could handle the volatility of cryptocurrency were having second thoughts as their portfolio values dropped.
There’s nothing wrong with investing in cryptocurrency, but it is a highly volatile investment. When deciding on such products to be part of your portfolio, you need to really ask yourself if it’s worth it.
If you’ve been burned by a poor investment choice, it might be worth switching to exchange-traded funds (ETFs) or a robo-advisor since they could give you a better overall asset allocation.
That’s not to say ETFs are immune to market fluctuations, but they tend to be more diversified, offering less risk than crypto.
Grocery prices are unlikely to go down
We all know that grocery prices have gone up due to inflation, but the moment I had enough was when a head of lettuce was selling for $9 at my local grocery store. I immediately cut salad out of my meal plans.
Unfortunately, it’s unlikely we’ll see relief in the aisles, so it may be worth considering the following if you want to keep costs down:
- Buy in bulk whenever you can to reduce your overall costs
- Meal plan for the week based on what’s on sale
- Switch to less expensive protein options, such as beans
- Purchase dried beans instead of canned
- Price match if your grocery store allows it
- Join the store loyalty program so you can earn points that can be redeemed for free groceries later
You’re not alone
If all of these financial headlines have left you shaken, you’re not alone. According to the fifth annual edition of the IG Wealth Management Financial Confidence Index, Canadians have seen their “financial confidence” drop by 11 per cent, compared to the same period last year. Those aged 35 to 54 saw the biggest decrease, down 17 per cent.
For some, it may make sense to consult a financial advisor in order to iron out financial priorities and get more coaching on budgeting and saving.
Even though many Canadians are still confident about their individual situations, there’s no denying that what’s happened in the last year has had some impact on their budgets.
Looking back at what’s happened can help, but don’t let it leave you in a shock. It’s always best to plan for the future. How you do that will depend entirely on your personal situation.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Look forward to the new New Year, not back: Here are some financial | National Post
Dec. 27, 2022 "5 ways to set yourself up for financial success in 2023": Today I found this article by Barry Choi on the Financial Post:
Focus on debt repayment
Getting ahead is impossible if you have consumer debt, especially with interest rates rising like they have in 2022.
As a general rule, you should always focus on high interest debt first, such as credit card debt and consumer loans.
One way to bring your balance down is to take out a line of credit from your financial institution. This will allow you to transfer your credit card debt to your line of credit, which typically has a lower interest rate.
Since interest rates have been rising in Canada, the rates offered with lines of credit have also increased. That said, they’ll still be lower than most credit cards.
Set some realistic savings goals
Generally speaking, you want to set some short- and long-term goals. Depending on where you are starting from, this could be building an emergency fund or investing for the first time.
The idea here is that by having financial goals in place, every money decision you make moving forward will make a difference. For example, if you know you want to save a down payment for a home, you may decide to eat out less since every dollar spent is being taken away from your ultimate objective.
Also, make sure you’re using the right accounts for your goals.
The Tax-Free Savings Account (TFSA) contribution limit for 2023 is $6,500. Check your contribution room with the Canada Revenue Agency, as you may have more contribution room you haven’t used yet.
TFSAs are a great place for both short and long-term investing. If your focus is on retirement planning, use your Registered Retirement Savings Plan (RRSP). For those planning to buy their first home, keep an eye out for the new Tax-Free First Home Savings Account, which should be available in the spring of 2023.
Buy in bulk
Canadian food inflation has been down month-over-month, but it’s still up more than 10 per cent compared to the same time last year. To combat this inflation, consider buying in bulk whenever certain items go on sale. Some of the more expensive items you should target include meat, coffee, pasta, and butter. Pasta alone saw a 44 per cent price increase.
Use your local library more
Without a doubt, libraries are the single best resource to save money. These days, libraries offer more than just books and free newspapers. You can now get ebooks, DVDs, and even video games, often digitally. In addition, some libraries offer transit cards, and attraction passes for free.
If that wasn’t enough to bring you back, note that many libraries also offer free on-site education programs and activities for kids and adults. It’s worth checking to see what yours offers, as there might be things you would never have expected. For example, the Toronto Public Library has Presto transit cards and attraction tickets that you can borrow for free.
Put a stop to your impulse buying
Whether it be a $5 or $500 purchase, impulse buys can destroy your wallet. If you find yourself pulling out your card far too often, set a purchase limit for yourself that requires you to wait a certain time before you buy something.
For example, you could tell yourself that you’ll wait a week before buying any non-essential item that costs $100 or more. If that week passes, and you still want the item, then buy it. That said, there’s a good chance you’ll realize that you don’t actually need the purchase. If a week seems extreme, set a 24- or 48-hour rule instead.
Even though you may have already set a goal to reduce your impulse buys, you may need to take things a step further. It might be a good idea to ban yourself from certain stores or aisles.
For example, the record shop, Amazon, or the snacks aisle. Let’s be honest, there are just some things we can’t resist. Once the item is in front of us, we find ways to justify the purchase. If you don’t expose yourself to these situations, you’ll end up spending less.
Don’t be afraid to spend a little
While the focus of this list has been saving money, it makes sense to dedicate some of your funds to hobbies, activities with your family or things that will be meaningful to you.
There’s no point in working hard and hoarding all of your money if you can’t enjoy yourself. If you keep your short- and long-term financial goals at the forefront, you can responsibly set money aside to go out with friends, or take a long awaited vacation. With some discipline and planning, you can enjoy your money while also watching it grow.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
5 Money Moves to Make to Set Yourself Up For a Successful | Financial Post
My opinion: There are 6 tips. I know about buying in bulk and these other tips.
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