Feeling the pinch of inflation? Here’s how to get ahead
THE STACK #16We've been feeling the pinch of inflation for the past few months.
In Canada, consumer inflation increased by 7.7% YoY, the largest increase since January 1983...yikes! 😢
Gas prices have increased by 48%
Transportation cost has increased by 14.6%
Grocery prices went up by 9.7%
Food purchased from restaurants has increased by 6.8.
The cost of shelter has increased by 7.4%
Furniture prices have gone up 15.8%
Even travel is more expensive as travel accommodation has increased by 40.2%
To make matters worse, wages have only increased by 3.9%, falling behind inflation at 7.7% 😫
While there isn't much we can do to stop this madness, we can figure out how to navigate this beast of inflation.
In today's STACK, I will share some tips on how to get ahead and feel the pinch a bit less.
Let's get into it.
THE STACK
Adjust your budget
These prices are here to stay. The first thing you'll need to do is to revisit your budget and adjust accordingly.
If you had a $500 monthly grocery budget, seeing as the price of groceries has increased by 9.7%, your new grocery budget should be $548.5 or ~$550.
Gas went up by 48%; if your previous budget was, say $50 per week, your new budget should be $74.
The Math = $Budget x (1 + Inflation%) = $ New budget
Take advantage of the interest rates
When inflation increases, the Bank of Canada (BoC) usually increases the interest rates to help slow down borrowing and spending.
On the flip side, we see an increase in the interest rate of saving vehicles such as High interest-saving accounts, GICs and other term deposits.
Take advantage of these accounts instead of leaving cash in your chequing account, earning no interest.
Diversify your income
From the Stats, wages have not been able to keep up with inflation, and most employers cannot keep up either.
Having only one stream of income is starting to become more dangerous.
Now, I'm not a fan of having a million side hustles; I prefer to diversify my income by investing in income-producing assets such as stocks, index funds and private equity companies.
Switch from variable to fixed rate on debt
Interest on variable-rate debt increases as interest rates rise.
Variable loans have two components: A fixed-rate that the lender offers + Prime rate.
The prime interest rate increases as BoC increases interest rates, which means you may be paying higher interest on your loans.
This will affect loans such as lines of credit, personal loans and mortgages.
Do the math to see which interest rate is more favourable and consider switching.
Invest
Cash is getting sucker punched by inflation right now. The best way to grow your money is to invest.
My go-to method of investing is in the stock market.
If the stock market isn't your jam right now, you could invest in Real Return Bonds(RRBs)
These bonds are similar to I-bonds in the US. Their face value and interest are pegged to the Consumer Price Index (CPI).
As inflation increases, their yield increases as well.
RRBs are guaranteed by the Government of Canada and are designed to provide protection from inflation. Both the principal and interest payments increase with inflation, and interest payments are paid out twice a year.
Unlike I-bonds, which have a $10,000 limit, RRBs have no maximum limit that you can purchase, but there is a $5,000 investment minimum.
These bonds do have a long maturity window, so only invest an amount you don't have immediate need of, or you could invest in the ETF that holds these bonds, such as Ishares - XRB.
As always, do your own due diligence before investing.
THE TOOL
The Bank of Canada has a snazzy inflation calculator that you can use to figure out how to adjust your budget.
THE ACCOUNTABILITY
Do you have cash sitting in a chequing account?
It's being beaten to death by inflation.
Consider switching to a High-Interest Savings Account (HISA).
Some of the banks that have increased their interest rates are:
Neo Savings - 1.8% *on a HISA ( referral code: T5C9Z4N2)
EQ Bank - 1.65%* on a HISA and 4% on a 1-yr GIC (referral code: EDUEK9229)
*rates as of the time this post was published
THE COURAGE
THE KNOWLEDGE
INFLATION
Inflation is the decrease in purchasing power of a currency over time caused by an increase in the price of goods and services.
CONSUMER PRICE INDEX
The Consumer Price Index (CPI) is a basket of selected goods and services used to track price changes over time.
The goods and services used in CPI are divided into eight major components:
Food
Shelter
Household operations, furnishings and equipment
Clothing and footwear
Transportation
Health and personal care
Recreation, education and reading
Alcoholic beverages, tobacco products and recreational cannabis
CPI is used to measure inflation.
That's it for this week's STACK!
Talk to you next week,
But until then...Keep Stacking!
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