It's Your Money  

Tips to handle the impact of inflation

Inflation busters

Inflation has become a big concern for Canadians, as it appears it will be here for the long-term.

The Bank of Canada has projected inflation will remain above its target range of 1% to 3% until at least 2024. With rising costs, Canadians need to take action, if they haven’t done so already, to adapt to inflation and ensure their finances are secure.

Here are some strategies you can use to adapt to inflation:

1. Make a budget and stick to it—One of the best ways to prepare for inflation is to create a budget and stick to it. A budget helps you keep track of your expenses and allows you to identify areas where you can cut back. It also helps you save money and prepare for unexpected expenses.

2. Pay down debt—Inflation can make it difficult to pay off debt. As prices rise, so do interest rates, which can make it more expensive to service your debt. Canadians should prioritize paying down high-interest debt such as credit cards and personal loans. By reducing their debt load, they will have more money to save and invest.

3. Invest in assets that appreciate in value—Inflation can erode the value of cash and fixed-income investments over time. Canadians should consider shifting more of their portfolio to assets that appreciate in value, such as stocks, real estate, and commodities (if their risk profile allows). These assets tend to perform well during periods of inflation and can provide a hedge against rising prices.

4. Protect your purchasing power with inflation-indexed investments—Inflation-indexed investments, such as inflation-protected bonds, are designed to protect your purchasing power from inflation. These investments adjust their value based on the inflation rate, with the goal to ensure that your money maintains its value over time.

5. Consider earning additional income—With rising prices, Canadians may need to earn additional income to make ends meet. There are many ways to earn extra income, such as freelancing, starting a side hustle, or renting out a spare room. By earning additional income, you can offset the impact of inflation on your finances.

6. Shop smartly and save money—As prices rise, it is important to shop smartly and save money wherever possible. You should compare prices, shop for bargains and use coupons and loyalty programs to save money on everyday expenses. Also consider buying in bulk, cooking at home and cutting back on discretionary expenses to reduce your overall spending.

7. Diversify your investments—Diversification is an essential strategy for managing risk and maximizing returns. Investors should consider diversifying their investments across different asset classes, sectors, and geographies. That can help reduce the impact of inflation on their overall portfolio and provide a buffer against market volatility.

8. Build an emergency fund—Inflation can make unexpected expenses more costly. Canadians should build an emergency fund to help them weather unexpected expenses such as car repairs, medical bills, or job loss. An emergency fund should ideally cover six months of living expenses.

Whether you like it or not, inflation is a challenging economic phenomenon that you must adapt to. By being proactive in your strategies to tackle inflation, you can protect yourself and your family against the negative impact of inflation and secure your financial future.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Spring is a good time to clean up your finances

Time for financial check-up

Spring is a time for fresh starts, making it the perfect season to tackle the clutter in your home - and in your finances.

Just like you straighten up your home and clean out your garage, it's important to declutter and clean up your finances too. With tax season just around the corner, now is a great time for Canadians to take a closer look at their financial situation and do some spring cleaning.

Here are 10 tips on how to spring clean your finances:

1. Review your budget—A budget is the cornerstone of financial planning. Take the time to review your budget and make sure it's up-to-date. Look for areas where you can cut back and areas where you might be able to allocate more money. Consider using a budgeting app to help you track your expenses and stay on track.

2. Check your credit report—Your credit report is a record of your borrowing and repayment history. It's important to check your credit report regularly to ensure that everything is accurate and up-to-date. You can get a free copy of your credit report once a year from each of the two major credit bureaus in Canada: Equifax and TransUnion.

3. Review your investments—Take a look at your investment portfolio and make sure it's aligned with your financial goals. If you're not sure where to start, consider speaking with a professional financial advisor. They can help you create a plan that's tailored to your needs and goals.

4. Consolidate your debt—If you have multiple debts, it might make sense to consolidate them into one loan with a lower interest rate. This can help you save money on interest and make it easier to manage your payments.

5. Set up automatic payments—Late payments can hurt your credit score and lead to additional fees and interest charges. Setting up automatic payments can help ensure that your bills are paid on time and that you avoid unnecessary fees and charges.

6. Negotiate your bills—Many service providers, such as phone and cable companies, are willing to negotiate their rates. Take the time to call your providers and see if you can get a better deal. You might be surprised at how much you can save.

7. Create an emergency fund—Life is unpredictable, and it's important to have a cushion in case of unexpected expenses. Aim to save three to six months' worth of living expenses in an emergency fund.

8. Get rid of unnecessary expenses—Take a look at your monthly bills and see if there are any expenses you can eliminate. Do you really need that gym membership? Can you cut back on your cable or streaming subscriptions? Eliminating unnecessary expenses can help free up money to put towards your financial goals.

9. Start saving for retirement—It's never too early to start saving for retirement. Consider opening a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).

10. Review your insurance coverage: Make sure you have adequate insurance coverage for your life, home, car, and other assets. Review your policies and make sure they're up-to-date. Consider increasing your coverage if necessary.

Spring cleaning your finances might not be as exciting as decluttering your closet, but it's just as important. By taking the time to review your financial situation and make some changes, you can set yourself up for a brighter financial future.

Start by tackling one or two of these tips, and before you know it, you'll have a cleaner and more organized financial picture.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Why getting a tax return is not what you want to do

Proper tax planning

You may think that receiving a tax refund is a good thing. After all, you're getting some money back, right?

However, getting a tax refund is not something you should aim for as it means that you did not do proper tax planning throughout the year. Here are several reasons why Canadians should never get a tax refund:

First and foremost, a tax refund means you gave the government an interest-free loan. When you receive a tax refund, it means you overpaid your taxes throughout the year. Instead of having that money in your pocket, you essentially lent it to the government interest-free.

This might not seem like a big deal, but it can add up over time. The money you overpaid could have been invested, earning interest or returns. Or it could have been used to pay down debt earlier and saved you on interest costs. By giving the government an interest-free loan, you're missing out on potential gains and/or savings.

Secondly, a tax refund can encourage bad financial habits. If you receive a large tax refund, you may be tempted to spend it on something you don't really need, like a new TV or a vacation. While it might be fun to splurge a little, this is not a smart financial decision.

Instead, you should have been using that money throughout the year to pay off debts or invest in your future. By relying on a tax refund to fund your lifestyle, you're not setting yourself up for long-term financial success.

Furthermore, a tax refund can be a sign of poor tax planning. If you consistently receive a tax refund year after year, it may be a sign that you're not properly planning your taxes. You may not be taking advantage of tax-saving opportunities or you may be underestimating your tax deductions. This can lead to unnecessary stress and financial hardship, especially if you're relying on that tax refund to cover expenses.

Lastly, a tax refund can delay your financial goals. If you're receiving a large tax refund, it means you're not getting your money until after tax season. This can delay your financial goals, such as paying off debt, saving for a down payment on a home, or investing in your retirement. By having that money throughout the year, you can start working towards your financial goals earlier and make more progress.

When you file your taxes this spring, and if you get a refund, consider that a wakeup call to do some better tax planning for next year. Even more so if you got a refund last year too.

Aim to break even with your taxes by properly planning and taking advantage of tax-saving opportunities. By doing so, you can have more control over your finances and set yourself up for long-term financial success.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Tips to be ready for tax time

Tax time preparation

As tax season approaches, Canadians should start preparing their paperwork and finances to ensure that they file their taxes accurately and on time.

Filing taxes is a legal obligation, and failure to do so can result in penalties and fines. Here are some tips on how Canadians can prepare for tax season:

Gather all necessary documents - Before starting to file your taxes, it's important to gather all necessary documents, including income statements, receipts, and invoices. This includes your T4 slip, which shows your employment income, as well as any slips you received for pensions, investments, and other sources of income. Additionally, you should keep track of all your receipts for tax-deductible expenses, such as medical expenses, charitable donations, and tuition fees.

Organize your finances - Once you've gathered all necessary documents, it's important to organize your finances to ensure that you have a clear understanding of your financial situation. This includes creating a budget, tracking your expenses, and reviewing your bank and credit card statements. By organizing your finances, you can identify any discrepancies or errors, which can help you avoid penalties and fines when filing your taxes.

Consider hiring a professional - While some Canadians choose to file their taxes themselves, others prefer to hire a professional to handle their taxes. This is especially true for individuals with complex tax situations, such as those who are self-employed, have investment income, or own a business. A professional can help you navigate the complexities of the tax code, ensure that you take advantage of all available deductions and credits, and help you avoid costly mistakes.

Take advantage of tax credits and deductions - There are several tax credits and deductions available to Canadians, which can help reduce their tax bill. For example, the medical expense tax credit, the charitable donation tax credit, and the tuition and education tax credit. By taking advantage of these tax breaks, you can lower your tax bill and increase your refund (or reduce the amount you owe).

File your taxes on time - Filing your taxes on time is critical to avoid penalties and fines. The deadline for filing taxes in Canada is typically April 30, although this may vary depending on your situation. It's important to file your taxes on time, even if you're unable to pay your tax bill in full. If you're unable to pay your tax bill, you can contact the Canada Revenue Agency (CRA) to make payment arrangements.

Be aware of tax scams - Scams are designed to trick consumers into giving away personal and financial information. These scams can take many forms, including phishing emails, phone calls, and text messages. The CRA will never ask for personal information or payment through email, text message, or social media. If you're unsure whether a communication from the CRA is legitimate, you can contact them directly to verify.

Preparing for tax season is an important task for Canadians and the sooner you start, the easier it will be.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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