Be smart about how you spend and borrow in the coming months as your cost of living will increase.
We are entering a difficult period of the pandemic – one in the form of personal finance. Much has turned upside down for the lucky families who haven’t experienced a drop in income, as some certainly have. Now, it’s time to prepare for some downside — especially rising prices, which we haven’t seen in decades.
Gasoline prices hit record lows in some parts of the country over the Thanksgiving weekend, and natural gas prices are rising as well. Inflation is well established at all, while the wage gap widens. A big reason for inflation is disruptions to global supply chains, a problem that is driving some of the gloomy holiday season buyouts.
Overlaying all of this is another reopening of the economy that will provide opportunities for people to spend from the start of 2020. For example, sports stadiums, concert venues and cinemas in Ontario are open to full capacity, and the Canada-US land border is being reopened to fully vaccinated Canadians early next month.
Billions of dollars in savings were deposited into bank accounts during the pandemic, homes have soared in value, and stocks have done the same. But even well-endowed families can experience a conflict between high living costs and rapid spending.
Some ideas on how to prepare: One, ration your food. Don’t try to make up for lost time through the amount or wastage of events or trips you have booked. There’s no need to set a new family standard for spending this holiday season.
What you should do with your holiday shopping has begun as of today. I tweeted a picture Tuesday of an Ottawa Home Reno store was met with a giant Christmas display and lots of amusingly funny comments. But with global supply chains disrupted by the pandemic, what you see on store shelves today may not be restored for months. It’s an argument to buy now, not later.
Include your borrowings, along with your expenses. Better housing blog, always a good read if you follow the housing market, recently reported Lending through home equity lines of credit is growing at the fastest rate since 2019. A HELOC is usually a smart way to borrow, but the sign that you shouldn’t use it is not being able to repay it in fairly short order — say, one to two years.
If inflation drives up your monthly costs, will you be able to pay off your HELOC balance sooner? A long-term loan made on a HELOC is much cheaper than a credit card, but it tells the same story of living beyond your means.
Apply the same critical thinking to car loans. J.D. Power reports that the average monthly vehicle payment in September was a little less than $700, and 52 percent of loans were for periods of 84 months and more. Unless you are absolutely sure of your near- and long-term financial strength, this is a big, long commitment.
If you’re weighing whether to return to the office or work at home, consider the trade-off for your household expenses. If you are bound to go to the office, there are costs related to both public transportation and your car. Resuming commuting – if your insurer is notified, as it should – will eliminate the discount you received for minimal driving during the pandemic.
Working at home means keeping the heat at a normal level throughout the day rather than letting the temperature drop a bit while you’re out. Natural gas utilities in Ontario and Saskatchewan have already applied to regulators for permission to raise rates for customers. You can also start a home discussion on where to set the thermostat.
Higher gasoline and heating costs contribute to inflationary conditions that are unlikely to subside in the near term. The US inflation rate drew attention last month to 5.4 per cent compared to the same period a year ago, while Canada’s inflation stood at 4.1 per cent in August.
Unless your wages are rising in line with inflation, every price increase will impact your household budget. Home prices and stocks may continue to rise, but the financial windfall of the pandemic is over.
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