Financial Strategies to Combat Inflation

As prices keep going up, many Canadians are faced with rising costs. Those with enough income or savings may find it a mild inconvenience, but for those living paycheque to paycheque can find it more of a financial struggle.

Besides food and shelter, inflation can also impact prices for many household items, transportation costs, recreation, alcohol and more. Those living on a lower income may find it’s necessary to make some adjustments, and we have a number of financial strategies to help combat inflation.

How is Inflation Calculated

In Canada, the Consumer Price Index (CPI) is an economic indicator that compares certain goods and services purchased by consumers. This usually includes everyday items for food, housing and clothing to gauge the changes in price as a percentage which allows for estimating the overall amount of inflation in the economy.  When inflation is a factor, money doesn’t buy as much as it once did. Overall, this can hurt the standard of living for most. This also means that inflation can decrease the value of income and savings as well. 

Restructure Your Debt

Since inflation can impact your lifestyle, restructuring your debt can help to lower your monthly payments and help deal with rising costs. Also be wary about taking on new debt, and try to avoid variable rates. 

Debt Consolidation – if you should have multiple loans or credit cards, debt consolidation is often a way to help you afford more, or get by more comfortably. A debt consolidation personal installment loan can put you in a position where you might have lower interest rates, or possibly lower monthly payments, and sometimes both. This typically requires a fair to good credit score, but if you have high-interest loans it can still be to your benefit if you qualify. It never hurts to check and is definitely worth investigating. 

Lower rate credit card – if you carry credit card debt, it’s definitely worth checking to see whether you might be able to find credit card options with lower rates. Sometimes you can find promotional offers for zero balance transfer credit cards that can also work to your advantage that would also be worth exploring. 

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Mind Your Spending

If you had plans for a big purchase or upgrade in the near future, it could be worth putting those plans on hold if you find you are struggling to deal with inflation. Consider reassessing your spending habits and manage your cash flow cautiously, especially when you carry debt. According to a recent survey about 83% of Canadians say they have changed their spending habits due to inflation. 

Sales and Points

When it comes to getting serious about managing your money and expenses, being a strategic shopper can go a long way, such as watching for sales, along with making use of coupons, loyalty or rewards. You can stretch your dollar with each, which might help with paying down debt quicker, or just make for less financial stress and monthly struggle. Make use of rewards or loyalty programs to maximize savings opportunities and help you with saving more money.

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How Inflation Occurs 

Inflation is the result of a chain of events. When people buy less, such as during a pandemic, this can affect business, which sometimes needs to lay off employees as a result. The increase in unemployment results in less buying, and less buying further impacts businesses. To fix inflation, the Bank of Canada works to influence demand in the economy, which it does by adjusting borrowing costs through adjustments to interest rates. The prime rate, which is controlled by the Bank of Canada, influences the cost of borrowing for mortgages, along with other types of consumer debt like personal loans, credit cards, home-equity lines of credit, and auto loans. Banks use the prime rate to calculate their own interest rates. When inflation and prices are getting too high, raising interest rates lowers demand and helps bring the economy back to a more stable position.

Better Late than Never

If you still don’t have a budget, and about half of Canadians use one, there’s no time like the present for you to take a renewed interest in your finances and actually create a budget to help with getting a handle on your finances. 

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