With inflation rising rapidly, many Canadians are feeling the pinch financially.
Canada’s inflation rate for February was at 5.7%, representing the highest the country has seen in 30 years. Gas prices rose more than 32.3% compared to last year and food prices are up more than 7.4%. Real estate costs are not counted in the federal government’s consumer price index, but the cost of owning a home in 2021 was 26% more expensive compared to 2020.
With the cost of living rising at a time when many Canadians are still feeling the effects from COVID-19, it’s never been more important to review your budget. If you don’t have a budget, it is imperative that you create one now.
“We’re living in some pretty unprecedented times where inflation is at a 30-year high and we still haven’t even seen the full outcome of the global pandemic,” says John Eisner, President & CEO of SolveYourDebts.com. “It’s inevitable that most Canadians are going to be affected by this, if they haven’t already, and so it’s important that they get ahead of it and create or update their budget now.”
Eisner offers some advice on how to get your financial house in order during this tumultuous time.
1. Review your current financial status
“Start by considering your personal situation. Tracking your income and expenses is a great way to get the specific numbers involved. Plus, seeing it all in writing helps you visualize where your money is currently going.”
Take the time to sit down and review your finances for the past three months. Did you spend more than you made? Did your budget balance? If not, you’ll need to figure out where you’re overspending and where to cut back. You also may want to consider increasing your emergency fund or savings at this time, and to do so you will likely need to cut back expenses.
Next, review your tax situation from last year and determine what tax bracket you’ll fall into this year.
“If your 2022 is shaping up to mirror your 2021 financially, then your taxes will likely play out similarly,” says Eisner. “So if you owed on your taxes last year – and found yourself scrambling to find the money – you still have time to save and avoid a similar outcome next tax season.”
2. Make a realistic plan
Think about where you’d like to be financially by this time next year. Creating a plan will help you get there. For some, it may be to continue to save for that down payment. But for others, it may simply be to try and stay afloat.
“By having a realistic budget, you’ll have a strong understanding of what money is coming in and going out,” says Eisner. “You’re also able to identify areas for improvement when it comes to savings.”
To start budgeting better, you need to be honest with yourself first about your spending habits. It will be hard to see any improvements without acknowledging and addressing a financially expensive habit – such as dining out five days a week.
Combine a tight budget with the SMART (Specific, Measurable, Achievable, Relevant and Timely) goal setting strategy so that you’re able to hold yourself accountable. For example, if you want to put $5,000 towards your student loan by the end of the year, set a goal of paying $500 to your balance by a specific date each month.
3. Monitor your progress
A budget isn’t something that gets created once and never looked at again. It’s a living document that must be referred to regularly.
It’s important to realize that your financial plan can change. Depending on what life unfolds for you throughout the coming months, you’ll need to be open to altering your budget and financial strategy.
If you feel that you need help creating your budget or staying on track, you might consider contacting a professional for help.
At SolveYourDebts.com, our accredited credit counsellors can help you create a realistic budget and teach you the skills and habits you need to manage your money over the long term. To book a free consultation, get in touch with us today!