It's Your Money  

Ways to curb adverse effects of inflation on your budget

Inflation-fighting tips

Sticking to a household budget can be hard at the best of times.

More than a third of Canadians struggle to manage their day-to-day finances or pay their bills even when inflation is under control.

High inflation can make budgeting an even bigger challenge than usual, and record-breaking inflation can make it seem close to impossible. In May, it rose to 6.8 per cent, the highest in 31 years. When expenses grow so fast, without a similar increase in your income, your budget can be derailed. If you’re a retiree on a fixed income, how do you make up the difference?

Sticking closely to your household budget is essential for good financial health. It ensures you don’t go into debt and you stay on course with your savings goals.

Let’s look at some of the ways you can beat inflation, so your budget stays on track:

Focus on paying off debts

When inflation starts pushing up prices, the first step you need to take is to reduce as many expenses as possible. Paying off high interest debt can substantially lower your outgoings. Credit card debt, which can have interest rates as high as 20 per cent and up, should be a priority.

Variable debt, such as lines of credit, should also be a priority, as the payments increase along with the Bank of Canada’s overnight rate. Having variable rate debt makes budgeting more difficult, because monthly debt payments become higher than before, and that extra money has to come from somewhere.

Reduce your family budget costs

This may sound overly simple, and some may consider it easier said than done, but this is an area of budgeting where you have the most control. There are several parts of your household budget expenses that you can focus on to reduce costs. You might be surprised at how effective this can be.

Reduce your grocery bills. More than two-thirds of Canadians say rising grocery prices have had an impact on their financial stress. That’s understandable when you realize that, between 2021 and 2022, the price of food in Canada rose by 9.7 per cent.

• Consider shopping at cheaper grocery stores and those that offer price matching.

• Use grocery store reward programs.

• By no-name brands instead of name brands.

Cut back on “fun” spending. This is one you probably don’t want to hear, but for many people this is an essential strategy during periods of high inflation if they’re going to keep their family budget on track.

• Skip dining out and instead order take-out. You’ll spend less overall, especially on wine and other drinks.

• Watch sports on TV, rather than at a stadium or arena. Yes, it’s not the same, but it will save you a lot of money.

• Go on day trips from home during vacation, rather than spending thousands on accommodation away.

• Go to concerts at smaller, much cheaper venues.

• Have friends over to your home instead of meeting at a bar.

There are plenty of tips out there that can help you to stop spending money, so that you can balance your budget but you need a budget to begin this process and it’s important to remember this is only temporary. Once inflation has returned to more normal levels and your budget allows it, you can increase your “fun” spending again.

Reassess your service providers

Take a close look at the services you subscribe to. There’s so much competition there are bound to be ways you can make some significant savings. Maybe cancel subscriptions altogether if they’re not being used enough.

Phone/cell phone/internet: If you still have a landline, now is the time to get rid of it and just use your cell phone. Also, consider downgrading your plan. Do you really need unlimited data? Try going down to one gig of data and hooking into Wi-Fi at cafes, restaurants and shopping malls when you’re away from home. This alone could save you hundreds of dollars a year.

Insurance: Car and home insurance are almost always cheaper when bought together. Insurance brokers can save you a lot of time and money by finding the best deal for your circumstances.

Cut cable and minimize streaming. You could save hundreds of dollars a year by getting rid of cable TV altogether and instead relying on streaming services. The likes of Netflix, Amazon Prime and Crave have basic packages that start from around $10 per month. However, make sure you don’t subscribe to too many streaming services.

Increase your income

When you’re looking at how to budget for inflation, reducing expenses is only one half of the equation. Boosting the income side of your family budget can be just as important. There are several ways to increase your income, you just need to get a little creative.

Ask for a raise. This is a simple one. Given the rate of inflation being so high, it’s not unreasonable to ask for a raise that helps your income keep up with rising costs.

Find a better paying job. If a decent raise is not forthcoming, it could be time to look for a new job. With the Canadian unemployment rate dropping to 5.2 per cent in September, and tens of thousands of new jobs being added every month, this could be a good time to look for a better-paying job.

Take on a side gig. Making extra income from a side business can have a big impact on your household budget. Starting a business that involves something you’re passionate about is always a good starting point.

Rent out spare accommodation. Renting out a room, a basement unit or even a whole property can bring in a lot of extra money. Check with your local municipality first, in case bylaws restrict short-term rentals.

Invest for the times

During high inflation, it becomes even more important to continue investing, so your portfolio has a chance to outperform inflation (and therefore not lose value). If you rely on investment portfolio to provide income during retirement, it’s important to draw from investments that can keep up with inflation.

How your professional financial planner can help you budget for inflation

A certified financial planner professional can be a source of crucial advice when you’re looking at how to budget for inflation.

He or she can:

• Help you to improve your cash flow.

• Explore ways to reduce your debt payments.

• Connect you with a mortgage and lending specialist to work on debt consolidation.

• Provide suggestions to make your investments more inflation-proof.

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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