Put your emotions aside when planning financially in times of high inflation: expert

The next interest rate announcement by the Bank of Canada will be on March 2, 2022.

St. Albert residents who have been out shopping or getting gas recently may have noticed an increase in prices.

“We have seen headwinds with supply chains putting upward pressure on prices. All of these things affect net household income because the cost of goods is going up so much,” said Craig Strain, certified financial planner at Red Willow Wealth Management.

The inflation we are experiencing is probably a short-term problem. In the meantime, Strain has some advice for people concerned about investing, saving, and how they should budget.

Strain said one of the main things he tells clients about inflation is to look at the big picture. He sees some normalization in the not too distant future and there are currently mechanisms in place to try to stabilize inflation, which includes a possible interest rate hike by the Bank of Canada in March.

“A lot of what we’ve seen lately is just that – it’s short-term, relative to their bigger picture,” he said.

When starting to invest, Strain said one of the first things people should look at is consumer debt.

“They might have credit card debt of $10,000 or more, $20,000 at 20%. It’s hard to say, “Well, let’s start putting your $100 or whatever it is you can allocate to savings here when the interest on your debt is going to exceed the gains you’re going to see on your investments,” a he declared. .

Strain said consumer credit wouldn’t really be affected by an increase in interest rates.

“These interest rates are already kind of predetermined by the credit card companies,” he said.

The cost of borrowing will increase however.

Strain said he’s not a mortgage broker, but generally speaking if people have variable rate mortgages and the rate goes up, more of their payments will go to interest.

“It’s something people need to be aware of, and I know a lot of people are looking at freezing rates,” he said.

Everyone’s situation will be unique, Strain said, but it’s important to know where discretionary dollars are going so people can continue to pay themselves first while dealing with fixed costs.

“Things like utility prices and all these other things are skyrocketing. It is becoming more and more difficult to manage them. So then you kind of have to look elsewhere in your expenses to figure out where you can cut to meet those expenses,” he said.

Strain said his budgeting tips aren’t too deep.

“It’s just wants versus needs… Do you need something, or do you want something, when it comes to your spending or when you’re following a budget,” he said.

Strain said finances are individual, but when looking at the big picture and investments or behaviors, people should continually try to allocate some of their income to ongoing savings, despite these increased costs.

Stain said one question he gets from clients about inflation is how it might directly affect their investments.

He said central banks try to fight inflation by raising interest rates.

“Then it hit the big markets with a slight pullback when they made the announcement about a month ago,” he said.

Strain said this caused a slight overcorrection, where all aspects of the market reacted negatively.

There are, however, some markets that have reacted differently, for example, energy is up right now.

“So you can look at this from a portfolio perspective,” he said.

Overall, Strain said it believes it is well-diversified and not too focused in one sector.

“We tell people to suppress the emotion… Staying in the market will, in the long run, have a better impact than trying to pull back and time the market… Again, just try to stay… focused on the long term,” he said.

Strain advises clients to consider making regular and frequent contributions to a Tax-Free Savings Account or Registered Retirement Savings Plan.

“We’re reaching out to customers to make sure we’re giving them the nudge to keep making those contributions — whatever they may be doing — to reduce their taxable income,” he said.

Strain said that in general his clients are more focused on the long term.

“They realize that it’s kind of part of the natural cycle of things. We have been in such low inflation or interest rates for quite a long time that it was inevitable that at some point they had to go up,” he said.