The Bank of Canada recently announced yet another interest rate hike. While many of us have experienced higher interest rates in the past, it’s been well over a decade since we’ve seen rates this high.
The intention for the rate increase is to reduce inflation (the cost of living) in Canada. Basic macroeconomics is about supply and demand. Due to Covid-19 and supply chain issues, the world has been impacted by lower access to and availability of products. So the Bank of Canada tries to lean on the demand side of the equation by curbing it with higher borrowing costs. The good news is if you have some money tucked away in savings, you’ll see better returns. However, you may also experience the negative side, which can look like higher interest
rates on your mortgage, lines of credit and loans if you have variable interest rates. This in turn creates higher debt payments, leaving less at the end of the month for you and your family. Here are five ways to handle the increase on your budget:
Before you panic, get the facts. There are a lot of media stories on inflation and interest rates. Check to see if you have any products that are impacted.
Know your numbers. This step may not be fun, but it will help you tremendously. Go through the last month or two’s bank and credit card statements and write down how much you spent in categories that make sense to you (e.g., housing, food, transportation, entertainment, internet and cable, phone, school, etc.). The point is to be interested in where your money has gone, not to be judge and jury on every financial transgression. Be gentle but curious. This information will tell you where inflation is hitting you the hardest so that you can plan.
Save on your food expenses by creating a meal plan and shopping list. This in and of itself will save you money (and time) but you can go further and download flyer apps for additional savings, rebate apps for money back, and coupons. Replace eating out with cooking a favourite recipe at home as a couple, family or solo. Or try making it fun with a homemade pizza night or potluck and games with friends. The possibilities are endless.
Check all your subscriptions and contracts. Do you need multiple streaming services? Multiple phone plans? As much data? What about your online subscriptions to various clubs, groups and organizations? Are there subscriptions that auto-renew and cost you unnecessarily?
Consider making a list of all your subscriptions, deciding what you want to keep and what can be cancelled. While this will take a bit of time and patience, it’s worth it once it’s done.
If you’re feeling stressed or overwhelmed with the cost of living, remember you are not alone. Many people in Canada are worried about their finances. You can always reach out to a non-profit credit counselling agency to talk with a trained professional about your finances. Together, you and your credit counsellor can work through a manageable budget, and create a plan to help you get back on track. It’s free, confidential, and chatting with someone has no impact on your credit. You can reach out to the national association Credit Counselling Canada to be connected with someone in your area.