Adjust to inflation and come out ahead!

We have seen that rising inflation is hitting certain specific sectors, like energy and food, much harder, but the effect has spread, since everything is connected in the global economy.

In practical terms, this inflation can be worrisome, because your income is still low and you have to stick to a tight spending budget. Incorporating cost increases for certain essentials such as food isn’t easy. Higher interest rates following the jump in inflation and the rise in the Bank of Canada’s policy rate could also affect you since it has impacted mortgage rates and consumer credit.

To help you make sense of it all, we asked the members of the fdp team dedicated to young professionals, to talk to us about the aspects of the current situation that are likely to directly affect you.

“It’s clear that when you’re in school or at the beginning of your career, what’s likely to affect your budget is rising interest rates.”

• If you already have a line of credit or want to get one, you should know that it has a variable rate, so it is subject to rising interest rates.
• If you have a credit card, its interest rate is fixed when you obtain it, but it can be increased later, subject to a regulatory notice period.

Our advice

• Continue to pay off your credit card on time.
• Since the interest rate on your line of credit is variable, be careful when using it. While you are in school, you will not have to make any payments on it. Remember, though, that interest on loans is cumulative. This means that your total debt balance will be higher due to rate increases. So you will have to calculate the real impact of these increases and add it to the amounts borrowed to know the total amount you will have to repay at the end of your studies.
• Avoid using credit to offset additional costs you may incur due to increases in inflation. It’s a quick fix, but your debt will increase, which will create additional stress that you certainly don’t need.

• You should have already made your budget, preferably with your financial advisor. This budget should take into account all your expenses (professional and personal, one-time and discretionary) and your income, and it should be reviewed periodically as your situation evolves.

Our advice

• If your expenses are increasing too much and you feel things are starting to get out of hand, don’t wait. Talk to your advisor. You’ll be able to get a new objective assessment of your situation, clearly determine your priorities and adjust your budget accordingly. Two heads are better than one in this case, and your advisor can give you impartial recommendations to keep your budget balanced.
• If you have started a savings program (by pre-authorized or periodic contributions), avoid dipping into these savings. Talk to your advisor first to find solutions.
• If you have an RRSP account, keep contributing, especially if you have worked a full year. These contributions give you a tax credit on your income tax return and help you build your financial security.

• Real estate is one of the sectors that has been affected by inflation, especially in terms of mortgage rates.

Our advice

• If you’re at the home-buying stage and are currently looking, you probably already have a mortgage pre-approval. This pre-approval tells you how much your bank is willing to lend you for the purchase. Be aware of the different options available to you (mortgage term, fixed rate or variable rate) and discuss with your mortgage advisor the best solutions for your situation.

Don’t let the current situation overwhelm you. At fdp, we want to help you get through financially tough times and come out ahead. Don’t hesitate to benefit from our expertise and our understanding of the challenges you face. You can count on us!”